[Federal Register Volume 85, Number 92 (Tuesday, May 12, 2020)]
[Rules and Regulations]
[Pages 28364-28407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08409]
[[Page 28363]]
Vol. 85
Tuesday,
No. 92
May 12, 2020
Part III
Bureau of Consumer Financial Protection
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12 CFR Part 1003
Home Mortgage Disclosure (Regulation C); Final Rule
Federal Register / Vol. 85 , No. 92 / Tuesday, May 12, 2020 / Rules
and Regulations
[[Page 28364]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1003
[Docket No. CFPB-2019-0021]
RIN 3170-AA76
Home Mortgage Disclosure (Regulation C)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
amending Regulation C to increase the threshold for reporting data
about closed-end mortgage loans, so that institutions originating fewer
than 100 closed-end mortgage loans in either of the two preceding
calendar years will not have to report such data effective July 1,
2020. The Bureau is also setting the threshold for reporting data about
open-end lines of credit at 200 open-end lines of credit effective
January 1, 2022, upon the expiration of the current temporary threshold
of 500 open-end lines of credit.
DATES: This final rule is effective on July 1, 2020, except for the
amendments to Sec. 1003.2 in amendatory instruction 5, the amendments
to Sec. 1003.3 in amendatory instruction 6, and the amendments to
supplement I to part 1003 in amendatory instruction 7, which are
effective on January 1, 2022. See part VI for more information.
FOR FURTHER INFORMATION CONTACT: Jaydee DiGiovanni, Counsel; or Amanda
Quester or Alexandra Reimelt, Senior Counsels, Office of Regulations,
at 202-435-7700 or https://reginquiries.consumerfinance.gov. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
Regulation C, 12 CFR part 1003, implements the Home Mortgage
Disclosure Act (HMDA), 12 U.S.C. 2801 through 2810. In an October 2015
final rule (2015 HMDA Rule), the Bureau established institutional and
transactional coverage thresholds in Regulation C that determine
whether financial institutions are required to collect, record, and
report any HMDA data on closed-end mortgage loans or open-end lines of
credit (collectively, coverage thresholds).\1\
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\1\ Home Mortgage Disclosure (Regulation C), 80 FR 66128 (Oct.
28, 2015). HMDA requires financial institutions to collect, record,
and report data. To simplify review of this document, the Bureau
generally refers herein to the obligation to report data instead of
listing all of these obligations in each instance.
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The 2015 HMDA Rule set the closed-end threshold at 25 loans in each
of the two preceding calendar years, and the open-end threshold at 100
open-end lines of credit in each of the two preceding calendar years.
In 2017, before those thresholds took effect, the Bureau temporarily
increased the open-end threshold to 500 open-end lines of credit for
two years (calendar years 2018 and 2019). In October 2019, the Bureau
extended to January 1, 2022, the temporary threshold of 500 open-end
lines of credit for open-end coverage.
This final rule adjusts Regulation C's coverage thresholds for
closed-end mortgage loans and open-end lines of credit.\2\ Effective
July 1, 2020, this final rule permanently raises the closed-end
coverage threshold from 25 to 100 closed-end mortgage loans in each of
the two preceding calendar years. The final rule also amends Sec.
1003.3(c)(11) and comment 3(c)(11)-2 so that institutions have the
option to report closed-end data collected in 2020 if they: (1) Meet
the definition of financial institution as of January 1, 2020 but are
newly excluded on July 1, 2020 by the increase in the closed-end
threshold, and (2) report closed-end data for the full calendar year.
The final rule sets the permanent open-end threshold at 200 open-end
lines of credit effective January 1, 2022, upon expiration of the
temporary threshold of 500 open-end lines of credit.
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\2\ When amending the Bureau's commentary, the Office of the
Federal Register requires reprinting of certain subsections being
amended in their entirety rather than providing more targeted
amendatory instructions and commentary. The subsections of
regulatory text and commentary included in this document show the
complete language of those subsections. In addition, the Bureau is
releasing an unofficial, informal redline to assist industry and
other stakeholders in reviewing the changes that it is finalizing to
the regulatory text and commentary of Regulation C. This redline can
be found on the Bureau's regulatory implementation page for the HMDA
Rule at https://www.consumerfinance.gov/policy-compliance/guidance/hmda-implementation/. If any conflicts exist between the redline and
this final rule, this final rule is the controlling document.
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II. Background
A. HMDA and Regulation C
HMDA requires certain depository institutions and for-profit
nondepository institutions to report data about originations and
purchases of mortgage loans, as well as mortgage loan applications that
do not result in originations (for example, applications that are
denied or withdrawn). The purposes of HMDA are to provide the public
with loan data that can be used: (i) To help determine whether
financial institutions are serving the housing needs of their
communities; (ii) to assist public officials in distributing public-
sector investment so as to attract private investment to areas where it
is needed; and (iii) to assist in identifying possible discriminatory
lending patterns and enforcing antidiscrimination statutes.\3\ Prior to
the enactment of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), Regulation C required reporting of 22
data points and allowed for optional reporting of the reasons for which
an institution denied an application.\4\
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\3\ 12 CFR 1003.1.
\4\ As used in this final rule, the term ``data point'' refers
to items of information that entities are required to compile and
report, generally listed in separate paragraphs in Regulation C.
Some data points are reported using multiple data fields.
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B. Dodd-Frank Act
In 2010, Congress enacted the Dodd-Frank Act, which amended HMDA
and transferred HMDA rulemaking authority and other functions from the
Board of Governors of the Federal Reserve System (Board) to the
Bureau.\5\ Among other changes, the Dodd-Frank Act expanded the scope
of information relating to mortgage applications and loans that
institutions must compile, maintain, and report under HMDA.
Specifically, the Dodd-Frank Act amended HMDA section 304(b)(4) by
adding one new data point. The Dodd-Frank Act also added new HMDA
section 304(b)(5) and (6), which requires various additional new data
points.\6\ New HMDA section 304(b)(6), in addition, authorizes the
Bureau to require, ``as [it] may determine to be appropriate,'' a
unique identifier that identifies the loan originator, a universal loan
identifier (ULI), and the parcel number that corresponds to the real
property pledged as collateral for the mortgage loan.\7\ New HMDA
section 304(b)(5)(D) and (6)(J) further provides the Bureau with the
authority to mandate reporting of ``such other information as the
Bureau may require.'' \8\
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\5\ Public Law 111-203, 124 Stat. 1376, 1980, 2035-38, 2097-101
(2010).
\6\ Dodd-Frank Act section 1094(3), amending HMDA section
304(b), 12 U.S.C. 2803(b).
\7\ Id.
\8\ Id.
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C. 2015 HMDA Rule
In October 2015, the Bureau issued the 2015 HMDA Rule implementing
the Dodd-Frank Act amendments to HMDA.\9\ Most of the 2015 HMDA Rule
[[Page 28365]]
took effect on January 1, 2018.\10\ The 2015 HMDA Rule implemented the
new data points specified in the Dodd-Frank Act, added a number of
additional data points pursuant to the Bureau's discretionary authority
under HMDA section 304(b)(5) and (6), and made revisions to certain
pre-existing data points to clarify their requirements, provide greater
specificity in reporting, and align certain data points more closely
with industry data standards, among other changes.
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\9\ 80 FR 66128 (Oct. 28, 2015).
\10\ Id. at 66128, 66256-58.
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The 2015 HMDA Rule requires some financial institutions to report
data on certain dwelling-secured, open-end lines of credit, including
home-equity lines of credit. Prior to the 2015 HMDA Rule, Regulation C
allowed, but did not require, reporting of home-equity lines of credit.
The 2015 HMDA Rule also established institutional coverage
thresholds based on loan volume that limit the definition of
``financial institution'' to include only those institutions that
either originated at least 25 closed-end mortgage loans in each of the
two preceding calendar years or originated at least 100 open-end lines
of credit in each of the two preceding calendar years.\11\ The 2015
HMDA Rule separately established transactional coverage thresholds that
are part of the test for determining which loans are excluded from
coverage and were designed to work in tandem with the institutional
coverage thresholds.\12\
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\11\ Id. at 66148-50, 66309 (codified at 12 CFR
1003.2(g)(1)(v)). The 2015 HMDA Rule excludes certain transactions
from the definition of covered loans, and those excluded
transactions do not count towards the threshold. Id.
\12\ Id. at 66173, 66310, 66322 (codified at 12 CFR
1003.3(c)(11) and (12)).
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D. 2017 HMDA Rule
In April 2017, the Bureau issued a notice of proposed rulemaking to
address certain technical errors in the 2015 HMDA Rule, ease the burden
of reporting certain data requirements, and clarify key terms to
facilitate compliance with Regulation C.\13\ In July 2017, the Bureau
issued a notice of proposed rulemaking (July 2017 HMDA Proposal) to
increase temporarily the 2015 HMDA Rule's open-end coverage threshold
of 100 for both institutional and transactional coverage, so that
institutions originating fewer than 500 open-end lines of credit in
either of the two preceding calendar years would not have to commence
collecting or reporting data on their open-end lines of credit until
January 1, 2020.\14\ In August 2017, the Bureau issued the 2017 HMDA
Rule, which, inter alia, temporarily increased the open-end threshold
to 500 open-end lines of credit for calendar years 2018 and 2019.\15\
In doing so, the Bureau indicated that the two-year period would allow
time for the Bureau to decide, through an additional rulemaking,
whether any permanent adjustments to the open-end threshold are
needed.\16\
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\13\ Technical Corrections and Clarifying Amendments to the Home
Mortgage Disclosure (Regulation C) October 2015 Final Rule, 82 FR
19142 (Apr. 25, 2017).
\14\ Home Mortgage Disclosure (Regulation C) Temporary Increase
in Institutional and Transactional Coverage Thresholds for Open-End
Lines of Credit, 82 FR 33455 (July 20, 2017).
\15\ Home Mortgage Disclosure (Regulation C), 82 FR 43088 (Sept.
13, 2017).
\16\ Id. at 43095. The 2017 HMDA Rule also, among other things,
replaced ``each'' with ``either'' in Sec. 1003.3(c)(11) and (12) to
correct a drafting error and to ensure that the exclusion provided
in that section mirrors the loan-volume threshold for financial
institutions in Sec. 1003.2(g). Id. at 43100, 43102. Recognizing
the significant systems and operations challenges needed to adjust
to the revised regulation, the Bureau also issued a statement in
December 2017 indicating that, for HMDA data collected in 2018 and
reported in 2019, the Bureau did not intend to require data
resubmission unless data errors were material. Among other things,
the Bureau also indicated that it intended to engage in a rulemaking
to reconsider various aspects of the 2015 HMDA Rule, such as the
institutional and transactional coverage tests and the rule's
discretionary data points. Bureau of Consumer Fin. Prot.,
``Statement with Respect to HMDA Implementation'' (Dec. 21, 2017),
available at https://files.consumerfinance.gov/f/documents/cfpb_statement-with-respect-to-hmda-implementation_122017.pdf. The
Board, the Federal Deposit Insurance Corporation, the National
Credit Union Administration, and the Office of the Comptroller of
the Currency released similar statements relating to their
supervisory examinations.
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E. Economic Growth, Regulatory Relief, and Consumer Protection Act and
2018 HMDA Rule
On May 24, 2018, the President signed into law the Economic Growth,
Regulatory Relief, and Consumer Protection Act (EGRRCPA).\17\ Section
104(a) of the EGRRCPA amends HMDA section 304(i) by adding partial
exemptions from HMDA's requirements for certain insured depository
institutions and insured credit unions.\18\ New HMDA section 304(i)(1)
provides that the requirements of HMDA section 304(b)(5) and (6) shall
not apply with respect to closed-end mortgage loans of an insured
depository institution or insured credit union if it originated fewer
than 500 closed-end mortgage loans in each of the two preceding
calendar years. New HMDA section 304(i)(2) provides that the
requirements of HMDA section 304(b)(5) and (6) shall not apply with
respect to open-end lines of credit of an insured depository
institution or insured credit union if it originated fewer than 500
open-end lines of credit in each of the two preceding calendar years.
Notwithstanding the new partial exemptions, new HMDA section 304(i)(3)
provides that an insured depository institution must comply with HMDA
section 304(b)(5) and (6) if it has received a rating of ``needs to
improve record of meeting community credit needs'' during each of its
two most recent examinations or a rating of ``substantial noncompliance
in meeting community credit needs'' on its most recent examination
under section 807(b)(2) of the CRA.\19\
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\17\ Public Law 115-174, 132 Stat. 1296 (2018).
\18\ For purposes of HMDA section 104, the EGRRCPA provides that
the term ``insured credit union'' has the meaning given the term in
section 101 of the Federal Credit Union Act, 12 U.S.C. 1752, and the
term ``insured depository institution'' has the meaning given the
term in section 3 of the Federal Deposit Insurance Act, 12 U.S.C.
1813.
\19\ 12 U.S.C. 2906(b)(2).
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On August 31, 2018, the Bureau issued an interpretive and
procedural rule (2018 HMDA Rule) to implement and clarify the partial
exemptions established by section 104(a) of the EGRRCPA and effectuate
the purposes of the EGRRCPA and HMDA.\20\ In the 2018 HMDA Rule, the
Bureau stated that it anticipated that, at a later date, it would
initiate a notice-and-comment rulemaking to incorporate the
interpretations and procedures into Regulation C and further implement
the EGRRCPA.
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\20\ Partial Exemptions from the Requirements of the Home
Mortgage Disclosure Act Under the Economic Growth, Regulatory
Relief, and Consumer Protection Act (Regulation C), 83 FR 45325
(Sept. 7, 2018).
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F. May 2019 Proposal and 2019 HMDA Rule
On May 2, 2019, the Bureau issued a notice of proposed rulemaking
(May 2019 Proposal) relating to Regulation C's coverage thresholds and
the EGRRCPA partial exemptions and requested public comment.\21\ In the
May 2019 Proposal, the Bureau proposed two alternatives to amend
Regulation C to increase the current threshold of 25 closed-end
mortgage loans for reporting data about closed-end mortgage loans so
that
[[Page 28366]]
institutions originating fewer than either 50 closed-end mortgage loans
or, alternatively, 100 closed-end mortgage loans in either of the two
preceding calendar years would not have to report such data. The May
2019 Proposal proposed an effective date of January 1, 2020, for the
amendment to the closed-end coverage threshold. The May 2019 Proposal
also proposed to adjust the coverage threshold for reporting data about
open-end lines of credit by (a) extending to January 1, 2022 the
current temporary coverage threshold of 500 open-end lines of credit,
and (b) setting the permanent coverage threshold at 200 open-end lines
of credit upon the expiration of the proposed extension of the
temporary coverage threshold. In the May 2019 Proposal, the Bureau also
proposed to make changes to effectuate section 104(a) of the EGRRCPA,
including incorporating into Regulation C the interpretations and
procedures from the 2018 HMDA Rule to implement and clarify section
104(a).
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\21\ Home Mortgage Disclosure (Regulation C), 84 FR 20972 (May
13, 2019). The Bureau also issued concurrently with the May 2019
Proposal an Advance Notice of Proposed Rulemaking (ANPR) to solicit
comment, data, and information from the public about the data points
that the 2015 HMDA Rule added to Regulation C or revised to require
additional information and Regulation C's coverage of certain
business- or commercial-purpose transactions. Home Mortgage
Disclosure (Regulation C) Data Points and Coverage, 84 FR 20049 (May
8, 2019). The Bureau anticipates that it will issue a notice of
proposed rulemaking later this year to follow up on the ANPR.
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The comment period for the May 2019 Proposal closed on June 12,
2019.\22\ The Bureau received over 300 comments during the initial
comment period from lenders, industry trade associations, consumer
groups, consumers, members of Congress, and others. Among the comments
received were a number of letters expressing concern that the national
loan level dataset for 2018 and the Bureau's annual overview of
residential mortgage lending based on that data (collectively, the 2018
HMDA Data \23\) would not be available until after the close of the
comment period for the May 2019 Proposal. Stakeholders asked to submit
comments on the May 2019 Proposal that reflect consideration of the
2018 HMDA Data. To allow for the submission of such comments, on July
31, 2019 the Bureau issued a notice to reopen the comment period on
certain aspects of the proposal until October 15, 2019 (July 2019
Reopening Notice).\24\ Specifically, the Bureau reopened the comment
period with respect to: (1) The Bureau's proposed amendments to the
permanent coverage threshold for closed-end mortgage loans, (2) the
Bureau's proposed amendments to the permanent coverage threshold for
open-end lines of credit, and (3) the appropriate effective date for
any amendment to the closed-end coverage threshold.\25\ The Bureau
stated that, after reviewing the comments received by the October 15,
2019 deadline, it anticipated that it would issue in 2020 this separate
final rule addressing the permanent thresholds for closed-end mortgage
loans and open-end lines of credit.
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\22\ A separate comment period related to the Paperwork
Reduction Act closed on July 12, 2019. 84 FR 20972 (May 13, 2019).
\23\ This document uses ``2018 HMDA Data'' to refer to the
publicly available national loan level dataset for 2018 and the
Bureau's annual overview of residential mortgage lending, and ``2018
HMDA data'' to refer to the HMDA data submitted for collection year
2018.
\24\ See Home Mortgage Disclosure (Regulation C); Reopening of
Comment Period, 84 FR 37804 (Aug. 2, 2019).
\25\ Id. at 37806.
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The Bureau concluded that further comment was not necessary with
respect to the other aspects of the May 2019 Proposal.\26\ The Bureau
therefore did not reopen the comment period with respect to the May
2019 Proposal's proposed two-year extension of the temporary coverage
threshold for open-end lines of credit or the provisions in the May
2019 Proposal that would incorporate the EGRRCPA partial exemptions
into Regulation C and further effectuate EGRRCPA section 104(a). The
Bureau issued a final rule that finalized as proposed these aspects of
the May 2019 Proposal on October 10, 2019 (2019 HMDA Rule).\27\ The
Bureau explained in the 2019 HMDA Rule that extending the current
threshold of 500 open-end lines of credit for an additional two years
would allow the Bureau to consider fully the appropriate level for the
permanent open-end coverage threshold for data collected beginning
January 1, 2022, after reviewing additional comments relating to that
aspect of the May 2019 Proposal. The Bureau also stated that such an
extension would ensure that any institutions that are covered under the
new permanent open-end coverage threshold would have until January 1,
2022, to comply.
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\26\ Id.
\27\ Home Mortgage Disclosure (Regulation C), 84 FR 57946 (Oct.
29, 2019).
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G. HMDA Coverage Under Current Regulation C
The Bureau's estimates of HMDA coverage and the sources used in
deriving those estimates are explained in detail in the Bureau's
analysis under Dodd-Frank Act section 1022(b) in part VII below.\28\
The Bureau estimates that currently there are about 4,860 financial
institutions required to report their closed-end mortgage loans and
applications under HMDA. The Bureau estimates that approximately 4,120
of these current reporters are depository institutions and
approximately 740 are nondepository institutions. The Bureau estimates
that together these financial institutions originated about 6.3 million
closed-end mortgage loans in calendar year 2018. The Bureau estimates
that among the 4,860 financial institutions that are currently required
to report closed-end mortgage loans under HMDA, about 3,250 insured
depository institutions and insured credit unions are partially exempt
for closed-end mortgage loans under the EGRRCPA, and thus are not
required to report a subset of the data points currently required by
Regulation C for these transactions.
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\28\ See infra part VII.D.1. All coverage numbers provided in
this document are estimates based on available data, as explained in
part VII below. Due to rounding there may be some minor
discrepancies within the estimates provided. As discussed further in
part VII below, the Bureau's analyses in the May 2019 Proposal were
based on HMDA data collected in 2016 and 2017 and other sources. In
part VII of this final rule, the Bureau has supplemented the
analyses from the May 2019 Proposal with the 2018 HMDA data. See
infra part VII.E.2 & VII.E.3. In the May 2019 Proposal, the Bureau
estimated that there were about 4,960 financial institutions
required to report their closed-end mortgage loans and applications
under HMDA, with about 4,263 of those reporters being depository
institutions and about 697 being nondepository institutions. The
Bureau estimated that together, these financial institutions
originated about 7 million closed-end mortgage loans in calendar
year 2017. The Bureau also estimated that among the estimated 4,960
closed-end reporters, about 3,300 insured depository institutions
and insured credit unions were eligible for a partial exemption
under the EGRRCPA. The estimates in this final rule differ slightly
from those in the May 2019 Proposal due to the supplementation of
the analyses with 2018 HMDA data.
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As explained in more detail in part VII.E.3 and table 4 below,
under the current temporary threshold of 500 open-end lines of credit,
the Bureau estimates that there are about 333 financial institutions
required under HMDA to report about 1.23 million open-end lines of
credit. Of these institutions, the Bureau estimates that approximately
318 are depository institutions and approximately 15 are nondepository
institutions. The Bureau estimates that none of these 333 institutions
are partially exempt under the EGRRCPA.
Absent this final rule, if the open-end coverage threshold were to
adjust to 100 on January 1, 2022, the Bureau estimates that the number
of reporters would be about 1,014, who in total originate about 1.41
million open-end lines of credit. The Bureau estimates that
approximately 972 of these open-end reporters would be depository
institutions and approximately 42 would be nondepository institutions.
The Bureau estimates that, among the 1,014 financial institutions that
would be required to report open-end lines of credit under a threshold
of 100, about 595 insured depository institutions and insured credit
unions are partially exempt for open-end lines of credit under the
EGRRCPA, and thus are not
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required to report a subset of the data points currently required by
Regulation C for these transactions. Additional information on the
Bureau's estimates for open-end reporting, including the Bureau's
estimates at the permanent threshold of 200 lines of credit, is
provided in the section-by-section analysis of Sec. 1003.2(g) and part
VII below.
III. Summary of the Rulemaking Process
On May 2, 2019, the Bureau issued the May 2019 Proposal, which was
published in the Federal Register on May 13, 2019.\29\ As explained in
part II.F above, the comment period on the May 2019 Proposal closed on
June 12, 2019, and the Bureau subsequently reopened the comment period
with respect to certain aspects of the May 2019 Proposal until October
15, 2019.\30\ In total, the Bureau received over 700 comments in
response to the May 2019 Proposal and the July 2019 Reopening Notice
from lenders, industry trade associations, consumer groups, consumers,
and others.\31\ As discussed in more detail below, the Bureau has
considered the comments received both during the initial comment period
and in response to the July 2019 Reopening Notice in adopting this
final rule.
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\29\ Home Mortgage Disclosure (Regulation C), 84 FR 20972 (May
13, 2019).
\30\ Home Mortgage Disclosure (Regulation C); Reopening of
Comment Period, 84 FR 37804 (Aug. 2, 2019).
\31\ A large number of consumer groups, civil rights groups, and
other organizations stated in a joint comment letter in response to
the July 2019 Reopening Notice that, because the 2018 HMDA Data were
released in late August 2019, the reopened comment period did not
provide sufficient time for the public to analyze the proposed
changes prior to October 15, 2019. These commenters stated further
that the public was not provided a meaningful opportunity to comment
on the May 2019 Proposal and that the Bureau would not have the
benefit of fully informed comments that took into consideration the
2018 HMDA Data. The Bureau determines that additional time to
comment on the aspects of the May 2019 Proposal addressed in this
final rule is not necessary. The Bureau believes the more than 45-
day period between the release of the 2018 HMDA Data and the close
of the reopened comment period on October 15, 2019, provided
interested persons sufficient time to meaningfully review the
proposed changes relating to the permanent open-end and closed-end
thresholds and provide comment informed by the 2018 HMDA Data.
Regarding commenters' separate concerns over the Bureau's
dissemination of the data, the Bureau made available with the 2018
HMDA Data a HMDA data browser that facilitates analysis in
spreadsheet software, such as Excel, and allows users to filter the
national loan-level data to create summary tables and custom
datasets. The HMDA data browser allows users to, for example, create
summary tables that can be used to show which institutions are
active in a particular Metropolitan Statistical Area (MSA), state,
or county. Users can develop some understanding of the effect of
various loan-volume thresholds, for individual institutions, by
analyzing the publicly available modified loan/application register
data or, for all institutions, by analyzing the publicly available
national loan-level dataset.
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IV. Legal Authority
The Bureau is issuing this final rule pursuant to its authority
under the Dodd-Frank Act and HMDA. Section 1061 of the Dodd-Frank Act
transferred to the Bureau the ``consumer financial protection
functions'' previously vested in certain other Federal agencies,
including the Board.\32\ The term ``consumer financial protection
function'' is defined to include ``all authority to prescribe rules or
issue orders or guidelines pursuant to any Federal consumer financial
law, including performing appropriate functions to promulgate and
review such rules, orders, and guidelines.'' \33\ Section 1022(b)(1) of
the Dodd-Frank Act authorizes the Bureau's Director to prescribe rules
``as may be necessary or appropriate to enable the Bureau to administer
and carry out the purposes and objectives of the Federal consumer
financial laws, and to prevent evasions thereof.'' \34\ Both HMDA and
title X of the Dodd-Frank Act are Federal consumer financial laws.\35\
Accordingly, the Bureau has authority to issue regulations to implement
HMDA.
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\32\ 12 U.S.C. 5581. Section 1094 of the Dodd-Frank Act also
replaced the term ``Board'' with ``Bureau'' in most places in HMDA.
12 U.S.C. 2803 et seq.
\33\ 12 U.S.C. 5581(a)(1)(A).
\34\ 12 U.S.C. 5512(b)(1).
\35\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws'' and the provisions of title X of the
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12)
(defining ``enumerated consumer laws'' to include HMDA).
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HMDA section 305(a) broadly authorizes the Bureau to prescribe such
regulations as may be necessary to carry out HMDA's purposes.\36\ These
regulations may include classifications, differentiations, or other
provisions, and may provide for such adjustments and exceptions for any
class of transactions, as in the judgment of the Bureau are necessary
and proper to effectuate the purposes of HMDA, and prevent
circumvention or evasion thereof, or to facilitate compliance
therewith.\37\
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\36\ 12 U.S.C. 2804(a).
\37\ Id.
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V. Section-by-Section Analysis
Section 1003.2 Definitions
2(g) Financial Institution
Regulation C requires financial institutions to report HMDA data.
Section 1003.2(g) defines financial institution for purposes of
Regulation C and sets forth Regulation C's institutional coverage
criteria for depository financial institutions and nondepository
financial institutions.\38\ In the 2015 HMDA Rule, the Bureau adjusted
the institutional coverage criteria under Regulation C so that
depository institutions and nondepository institutions are required to
report HMDA data if they: (1) Originated at least 25 closed-end
mortgage loans or 100 open-end lines of credit in each of the two
preceding calendar years, and (2) meet all of the other applicable
criteria for reporting. In the 2017 HMDA Rule, the Bureau amended Sec.
1003.2(g) and related commentary to increase temporarily from 100 to
500 the number of open-end originations required to trigger reporting
responsibilities.\39\ In the May 2019 Proposal, the Bureau proposed (1)
to amend Sec. Sec. 1003.2(g)(1)(v)(A) and (g)(2)(ii)(A) and
1003.3(c)(11) and related commentary to raise the closed-end coverage
threshold to either 50 or 100 closed-end mortgage loans, and (2) to
amend Sec. Sec. 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B) and 1003.3(c)(12)
and related commentary to extend to January 1, 2022, the current
temporary open-end coverage threshold of 500 open-end lines of credit
and then to set the threshold permanently at 200 open-end lines of
credit beginning in calendar year 2022. In the 2019 HMDA Rule, as
discussed in part II.F above, the Bureau finalized the proposed
amendments relating to the two-year extension of the temporary open-end
coverage threshold. The Bureau stated at that time that it anticipated
that it would issue a separate final rule in 2020 addressing the
permanent thresholds for closed-end mortgage loans and open-end lines
of credit.\40\ For the reasons discussed below, the Bureau is raising
the closed-end coverage threshold to 100, effective July 1, 2020, and
is finalizing the proposed permanent open-end coverage threshold of
200, effective January 1, 2022, upon expiration of the current
temporary open-end coverage threshold of 500.\41\
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\38\ 12 CFR 1003.2(g)(1) (definition of depository financial
institution); 1003.2(g)(2) (definition of nondepository financial
institution).
\39\ 82 FR 43088, 43095 (Sept. 13, 2017).
\40\ 84 FR 57946, 57949 (Oct. 29, 2019).
\41\ For discussion of the effective dates, see part VI.
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Legal Authority for Changes to Sec. 1003.2(g)
In the 2015 HMDA Rule, the Bureau adopted the thresholds for
certain depository institutions in Sec. 1003.2(g)(1) pursuant to its
authority under section 305(a) of HMDA to provide for such adjustments
and exceptions for any
[[Page 28368]]
class of transactions that in the judgment of the Bureau are necessary
and proper to effectuate the purposes of HMDA. Pursuant to section
305(a) of HMDA, for the reasons given in the 2015 HMDA Rule, the Bureau
found that the exception in Sec. 1003.2(g)(1) is necessary and proper
to effectuate the purposes of and facilitate compliance with HMDA. The
Bureau found that the provision, by reducing burden on financial
institutions and establishing a consistent loan-volume test applicable
to all financial institutions, would facilitate compliance with HMDA's
requirements.\42\ Additionally, as discussed in the 2015 HMDA Rule, the
Bureau adopted the thresholds for certain nondepository institutions in
Sec. 1003.2(g)(2) pursuant to its interpretation of HMDA sections
303(3)(B) and 303(5), which require persons other than banks, savings
associations, and credit unions that are ``engaged for profit in the
business of mortgage lending'' to report HMDA data. The Bureau stated
that it interprets these provisions, as the Board also did, to evince
the intent to exclude from coverage institutions that make a relatively
small number of mortgage loans.\43\ Pursuant to its authority under
HMDA section 305(a), and for the reasons discussed below, the Bureau
believes that the final rule's amendments to the thresholds in Sec.
1003.2(g)(1) and (2) are necessary and proper to effectuate the
purposes of HMDA and facilitate compliance with HMDA by reducing burden
and establishing a consistent loan-volume test, while still providing
significant market coverage.\44\
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\42\ 80 FR 66128, 66150 (Oct. 28, 2015).
\43\ Id. at 66153.
\44\ A State attorney general suggested in its comments that
increasing the thresholds exceeds the Bureau's legal authority, but
as discussed above, the Bureau is adopting the increased thresholds
based on its authority under section 305(a) of HMDA.
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2(g)(1) Depository Financial Institution
2(g)(1)(v)
2(g)(1)(v)(A)
Section 1003.2(g) defines financial institution for purposes of
Regulation C and conditions Regulation C's institutional coverage, in
part, on the institution's closed-end mortgage loan origination volume.
In the 2015 HMDA Rule, the Bureau added the threshold of 25 closed-end
mortgage loans to the pre-existing regulatory coverage scheme for
depository institutions.\45\ In the May 2019 Proposal, the Bureau
proposed to amend Sec. 1003.2(g)(1)(v)(A) and related commentary to
increase the closed-end threshold for depository institutions from 25
to 50 or, alternatively, 100 closed-end mortgage loans. For the reasons
discussed below, the Bureau is now amending Sec. 1003.2(g)(1)(v)(A)
and related commentary to raise the threshold to 100 closed-end
mortgage loans.\46\
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\45\ 80 FR 66128, 66129 (Oct. 28, 2015). Prior to the 2015 HMDA
Rule, a bank, savings association, or credit union was covered under
Regulation C if: (1) On the preceding December 31, it satisfied an
asset-size threshold; (2) on the preceding December 31, it had a
home or branch office in an MSA; (3) during the previous calendar
year, it originated at least one home purchase loan or refinancing
of a home purchase loan secured by a first lien on a one- to four-
unit dwelling; and (4) the institution is federally insured or
regulated, or the mortgage loan referred to in item (3) was insured,
guaranteed, or supplemented by a Federal agency or intended for sale
to the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation. 12 CFR 1003.2 (2016).
\46\ In addition to finalizing changes that the Bureau proposed
to comment 2(g)-1 and changes related to optional reporting that are
discussed below, the final rule makes minor changes to comment 2(g)-
1 to update the years and loan-volumes in an example that
illustrates how the closed-end mortgage loan threshold works.
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Background on Closed-End Mortgage Loan Threshold for Institutional
Coverage of Depository Institutions
HMDA and its implementing regulation, Regulation C, require certain
depository institutions (banks, savings associations, and credit
unions) to report data about originations and purchases of mortgage
loans, as well as mortgage loan applications that do not result in
originations (for example, applications that are denied or withdrawn).
In adopting the threshold of 25 closed-end mortgage loans in the 2015
HMDA Rule, the Bureau stated that it believed that the institutional
coverage criteria should balance the burden on financial institutions
of reporting HMDA data against the value of the data reported and that
a threshold should be set that did not impair HMDA's ability to achieve
its purposes but also did not impose burden on institutions if their
data are of limited value.\47\ The Bureau also stated that the closed-
end threshold of 25 would meaningfully reduce burden by relieving an
estimated 1,400 depository institutions, or 22 percent of depository
institutions that previously reported HMDA data, of their obligations
to report HMDA data on closed-end mortgage loans.\48\ The Bureau
acknowledged that it would be possible to maintain reporting of a
significant percentage of the national mortgage market with a closed-
end threshold set higher than 25 loans annually and that data reported
by some institutions that would satisfy the threshold of 25 closed-end
mortgage loans may not be as useful for statistical analysis as data
reported by institutions with much higher loan volumes.\49\ However,
the Bureau determined that a higher closed-end threshold would have a
material negative impact on the availability of data about patterns and
trends at the local level and the data about local communities are
essential to achieve HMDA's purposes.\50\ The Bureau concluded that, if
it were to set the closed-end threshold higher than 25, the resulting
loss of data at the local level would substantially impede the public's
and public officials' ability to understand access to credit in their
communities.\51\
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\47\ 80 FR 66128, 66147 (Oct. 28, 2015).
\48\ Id. at 66148, 66277.
\49\ Id. at 66147.
\50\ Id.
\51\ Id. at 66148.
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However, after issuing the 2015 HMDA Rule and the 2017 HMDA Rule,
the Bureau heard concerns that lower-volume institutions continue to
experience significant burden with the threshold set at 25 closed-end
mortgage loans.\52\ For example, several depository institutions
recommended that the Bureau use its exemption authority to increase the
closed-end loan threshold and stated that the costs of HMDA reporting
and its impact on the operations of lower-volume financial institutions
do not justify the small amount of data such institutions would
report.\53\ In light of the concerns expressed by industry stakeholders
regarding the considerable burden associated with reporting the new
data points on closed-end mortgage loans required by the 2015 HMDA
Rule, in the May 2019 Proposal the Bureau proposed to increase the
closed-end threshold for institutions to ensure that it appropriately
balances the benefits of the HMDA data reported by lower-volume
institutions in furthering HMDA's purposes with the burden on
[[Page 28369]]
such institutions associated with reporting closed-end data. The Bureau
stated in the proposal that increasing the closed-end threshold may
provide meaningful burden relief for lower-volume depository
institutions without reducing substantially the data reported under
HMDA. The Bureau sought comments on how the proposed increase to the
closed-end threshold would affect the number of depository institutions
required to report data on closed-end mortgage loans, the significance
of the data that would not be available for achieving HMDA's purposes
as a result of the proposed increase, and the reduction in burden that
would result from the proposed increase for depository institutions
that would not be required to report.
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\52\ The Bureau temporarily raised the threshold for open-end
lines of credit in the 2017 HMDA Rule because of concerns based on
new information that the estimates the Bureau used in the 2015 HMDA
Rule may have understated the burden that open-end reporting would
impose on smaller institutions if they were required to begin
reporting on January 1, 2018. However, the Bureau declined to raise
the threshold for closed-end mortgage loans at that time and stated
that, in developing the 2015 HMDA Rule, it had robust data to make a
determination about the number of transactions that would be
reported at the threshold of 25 closed-end mortgage loans as well as
the one-time and ongoing costs to industry. 82 FR 43088, 43095-96
(Sept. 13, 2017).
\53\ In the May 2019 Proposal, the Bureau stated that it
received this recommendation in response to the Bureau's 2018
Request for Information Regarding the Bureau's Adopted Regulations
and New Rulemaking Authorities (RFI) although the 2015 HMDA Rule was
outside the scope of the RFI. See 84 FR 20972, 20976 (May 13, 2019).
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Comments Received on Closed-End Threshold for Institutional Coverage of
Depository Institutions
The Bureau received many comments regarding the proposed
alternatives for increasing the closed-end threshold from 25 to 50 or,
alternatively, 100 in proposed Sec. 1003.2(g)(1)(v)(A). Except for
comments related to the EGRRCPA, commenters typically did not
distinguish between their recommended closed-end threshold for
depository institutions under Sec. 1003.2(g)(1)(v)(A) and their
recommended closed-end threshold for nondepository institutions under
Sec. 1003.2(g)(2)(ii)(A).
Many commenters, including most financial institutions and national
and State trade associations that commented, supported increasing the
closed-end threshold. Most of these commenters discussed the burden of
collecting and reporting HMDA data, and despite acknowledging the
importance of HMDA data, stated that the cost of complying with
regulations has affected their ability to serve their communities. Many
industry commenters stated that the burden of complying with HMDA
requirements is exacerbated in smaller financial institutions due to
fewer staff and a lack of automated processes. A number of small
financial institutions stated that they have only a few employees who
work in mortgage lending and that these employees spend a considerable
amount of time on HMDA compliance, including collecting and entering
HMDA data into the appropriate software system and reviewing the data
for accuracy. One national trade association added that many small
financial institutions operate in geographic areas with shortages of
compliance professionals. Several industry commenters also noted that
the economies of scale that larger financial institutions can leverage
are generally not available to small financial institutions. Many small
financial institutions stated that, if the Bureau increased the closed-
end threshold and thus excluded them from HMDA's coverage, the
significant burden relief would allow their staff to focus on serving
customers.
A national trade association stated that a significant number of
small financial institutions limit or no longer offer specific mortgage
products due to the increased regulatory burden and legal risks
associated with such loans. This commenter stated that certain
institutions manage their mortgage lending to stay below the threshold
for HMDA reporting, which ultimately leaves customers with fewer
lending options, and suggested that an increase in the closed-end
threshold could increase the flow of credit by small banks into their
communities. For example, one small financial institution suggested
that, if it did not have to collect HMDA data, the resulting decrease
in compliance costs would allow it to maintain a program that provides
mortgages to low-to-moderate income families.
Several industry commenters stated that the loss of HMDA data as a
result of an increase in the closed-end threshold would not impact the
ability to identify potentially discriminatory lending or areas in need
of public sector investment. One national trade association stated that
institutions that would qualify for the exclusion under the thresholds
proposed by the Bureau were extremely small market participants with
limited loan volumes and that data on their lending patterns could be
obtained through the examination process. This commenter also suggested
that any type of fair lending peer comparisons using the HMDA data
could still be accurate because, under the proposed threshold of 100,
at least 96 percent of total originations would be retained. Many small
financial institutions stated that, in their fair lending exams, their
regulators have relied on HMDA data, but also on transaction testing
data and staff interviews, partly because of the limited number of
mortgage applications these institutions receive. These commenters
stated further that their regulators also retain full access to their
lending files and data needed for their fair lending assessment. A
number of commenters, including many small financial institutions and a
State trade association, stated that small financial institutions are
eligible for partial exemptions under the EGRRCPA and thus are already
exempt from reporting much of the data on their credit decisions that
would signal lending disparities, such as pricing information and
credit scores. The State trade association further stated that
examiners already need to review such institutions' files, rather than
relying on their HMDA data, to identify potentially discriminatory
lending patterns. A State trade association expressed the belief that,
due to budget constraints for some local governments and housing
authorities, HMDA data are not considered in the distribution of public
sector investments in certain areas. Moreover, this commenter stated
that, in areas where government authorities do consider HMDA data in
making public investment decisions, HMDA data from lower-volume
institutions make up a small percentage of the overall lending data
within the area and thus do not impact such investment decisions.
Relying on the reasons described above, most of the commenters
supporting the proposed increase to the closed-end threshold stated
that they preferred the proposed threshold of 100 closed-end mortgage
loans over the proposed threshold of 50 closed-end mortgage loans. In
some cases, commenters urged the Bureau to consider increasing the
closed-end threshold even higher, such as to 250, 500, or 1,000. A
national trade association recommended increasing the closed-end
threshold to 500 to harmonize HMDA's coverage requirements with the
threshold for the EGRRCPA partial exemptions. A trade association and
some small financial institutions suggested that the Bureau increase
the threshold to 1,000 closed-end mortgage loans, expressing the belief
that the Bureau's proposal did not go far enough to distinguish small
lending institutions from larger institutions in the mortgage market.
The trade association reasoned that increasing the threshold to at
least 1,000 closed-end mortgage loans would meaningfully reduce
regulatory burden associated with HMDA compliance and allow
institutions to direct their cost savings towards improving customer
service, increasing consumer-friendly products, and continuing to
invest in their communities.
Other commenters, including many community organizations, consumer
advocates, research organizations, and individuals, opposed the
Bureau's proposal to increase the closed-end threshold. These
commenters stated that an increase to the closed-end threshold, which
would result in a decrease in HMDA data, would imperil HMDA's purpose
of assessing whether financial institutions are meeting the housing
[[Page 28370]]
needs of their communities. For example, one research organization
stated that robust, quality data are critical to the work of regulators
and community reinvestment advocates in assessing how well institutions
are serving their communities. One commenter stated that lenders rely
on HMDA data for internal fair lending and community reinvestment
compliance efforts and to assess their performance relative to that of
their peers and competitors. A comment letter from 19 U.S. Senators
stated that the Bureau's proposal ignores existing exemptions that
already reduce the usefulness of HMDA data in many communities. These
Senators pointed out that the 2015 HMDA Rule exempted 22 percent of
depository institutions that had previously been required to report
HMDA data, which resulted in a significant loss of data in certain
census tracts. They also noted that an underlying purpose of HMDA is to
show how institutions are serving local communities and stated that,
even if the loss of data from smaller-volume institutions would be
limited when compared to the overall market, the loss of the data would
have a real and meaningful impact for residents of affected
communities. In a joint comment letter, a large number of consumer
groups, civil rights groups, and other organizations expressed a
similar concern that increasing the threshold would result in a large
loss of HMDA reporting that would otherwise provide a view of lending
trends in underserved areas.
Many consumer groups, civil rights groups, and other organizations
also discussed the importance of HMDA data for transparency and
accountability, noting that the public visibility of HMDA data has
motivated financial institutions to increase lending to traditionally
underserved borrowers and communities. They expressed concern that the
smaller institutions that would no longer be required to report closed-
end data at the proposed higher thresholds disproportionately lend in
underserved neighborhoods and that the proposed threshold increase
would result in a more notable decrease in closed-end data for
distressed urban areas, rural areas, tribal areas, communities of
color, and neighborhoods that have a high number of immigrants. These
commenters asserted that for decades the public has used HMDA data to
uncover and address redlining and other fair lending and fair housing
violations and stated that an increase in the threshold would make
identifying such practices more difficult. A consumer advocacy
organization stated that lenders offering unfavorable and unsustainable
loan terms and refinance loans in the period just before the financial
crisis disproportionally targeted certain groups. Many commenters also
stated that an increase in the closed-end threshold would impact the
public's ability to evaluate whether public investments are successful
in revitalizing struggling areas. For example, one community group
noted that the loss of HMDA data from banks and credit unions operating
in rural towns and communities would result in less information about
where capital is being deployed in those areas.
Many commenters who were opposed to increasing the closed-end
threshold pointed out the impact that an increase to the closed-end
threshold would have on the work of Federal and State agencies. They
stated that raising the thresholds would compromise enforcement work
against unfair and deceptive lending because there would be less data
available to monitor such activity. Similarly, commenters stated that
examinations pursuant to the Community Reinvestment Act (CRA) would
become more burdensome because examiners would likely need to be onsite
to review data rather than using publicly available HMDA data. A State
attorney general commenter suggested that under the Bureau's proposal,
major lenders would be exempt from HMDA reporting and that the lack of
data from such lenders would affect its ability to ensure that all of
its residents are able to access affordable credit free of
discrimination. In addition, this commenter stated that the proposed
closed-end threshold increase would all but eliminate its ability to
enforce fair lending laws in ``hyper-localized'' markets in rural areas
because small, local lenders are disproportionately represented in
rural areas (the commenter did not define the term ``hyper-localized,''
but the Bureau understands this term as referring to markets that are
limited to a small geographic area).
Several commenters also expressed concerns about the impact that an
increase in the closed-end threshold would have on visibility into
specific loan products, such as loans for multifamily housing and
manufactured housing. For example, a State attorney general expressed
concerns that a threshold higher than the current threshold of 25 would
limit data reported on multifamily dwellings that provide a significant
source of affordable housing in urban areas across the State. Another
commenter opposed an increase to the closed-end threshold because of
concerns that it would decrease visibility into manufactured housing
loans, reasoning that there are a small number of lenders that make
such loans.
Many commenters who opposed an increase in the closed-end threshold
also stated that the cost savings that would result from excluding
lenders from HMDA reporting would be modest. These commenters asserted
that the burden of HMDA reporting is not so significant as to make up
for the loss of data that would otherwise be available at the current
threshold of 25 closed-end mortgage loans for the public and regulators
to monitor fair lending compliance. These commenters stated further
that the estimates of potential cost savings provided by the Bureau in
the proposal were too high and that the cost of HMDA reporting is low.
First, they stated that most of the lenders that would be excluded
under the Bureau's proposed rule are already exempt from reporting many
of the new HMDA data points because they qualify for partial exemptions
under the EGRRCPA and would therefore be reporting data that lenders
have been reporting for decades. Second, these commenters noted that
much of the data reportable under HMDA must be collected for other
rules, including the TILA-RESPA Integrated Disclosure and Ability-to-
Repay/Qualified Mortgage rules, and ordinary underwriting standards.
Finally, these commenters stated that HMDA data should be collected as
a matter of sound banking practices and asserted that reporting the
data is unlikely to require substantial resources given modern
technological advancements.
Final Rule
Pursuant to its authority under HMDA section 305(a) as discussed
above, the Bureau is finalizing the closed-end threshold for depository
institutions at 100 in Sec. 1003.2(g)(1)(v)(A). As discussed below,
the Bureau believes that increasing the closed-end threshold to 100
will provide meaningful burden relief for lower-volume depository
institutions while maintaining reporting sufficient to achieve HMDA's
purposes.
Since the 2015 HMDA Rule was issued, a few developments have
affected the Bureau's analyses of the costs and benefits associated
with the closed-end threshold. The Bureau has gathered extensive
information regarding stakeholders' experience with the 2015 HMDA Rule,
through comments received in this rulemaking and other feedback. As
stated above, the Bureau has heard that financial institutions have
encountered
[[Page 28371]]
significant burdens in complying with the rule, and the Bureau is
particularly concerned about the increased burdens faced by smaller
institutions. Additionally, the Bureau now has access to HMDA data from
2018, which was the first year that financial institutions collected
data under the 2015 HMDA Rule, and has used these data in updating and
generating the estimates provided in this final rule. With the benefit
of this additional information about the 2015 HMDA Rule, and the new
data to supplement the Bureau's analyses, the Bureau is now in a better
position to assess both the benefits and burdens of the reporting
required under the 2015 HMDA Rule.
Another development since the 2015 HMDA Rule is the enactment of
the EGRRCPA, which created partial exemptions from HMDA's requirements
that certain insured depository institutions and insured credit unions
may now use.\54\ The partial exemption for closed-end mortgage loans
under the EGRRCPA relieves certain insured depository institutions and
insured credit unions that originated fewer than 500 closed-end
mortgage loans in each of the two preceding calendar years of the
obligation to report many of the data points generally required by
Regulation C.\55\ While the EGRRCPA relieves burden for some depository
institutions, it does not relieve smaller depository institutions from
the burdens of reporting entirely.
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\54\ Public Law 115-174, 132 Stat. 1296 (2018).
\55\ See 84 FR 57946 (Oct. 29, 2019).
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The Bureau has considered the appropriate closed-end threshold in
light of these developments and the comments received. On balance, the
Bureau determines that the threshold of 100 closed-end mortgage loans
provides sufficient information on closed-end mortgage lending to serve
HMDA's purposes, while appropriately reducing ongoing costs that
smaller institutions are incurring under the current threshold. These
considerations are discussed in turn below, and additional explanation
of the Bureau's cost estimates is provided in the Bureau's analysis
under Dodd-Frank Act section 1022(b) in part VII.E.2 below.
Effect on Market Coverage
For this final rule, the Bureau reviewed multiple data sources,
including recent HMDA data \56\ and Reports of Condition and Income
(Call Reports), and developed estimates for the two thresholds the
Bureau proposed in the alternative, 50 and 100, as well as thresholds
of 250 and 500, which many commenters suggested the Bureau consider.
The Bureau notes that many of the estimates provided in this final rule
differ slightly from the initial estimates provided in the May 2019
Proposal. As discussed below in part VII.E.2, the estimates in this
final rule update the initial estimates provided in the May 2019
Proposal with the 2018 HMDA data, which were not available at the time
the Bureau developed the May 2019 Proposal. For the May 2019 Proposal,
the Bureau used data from 2016 and 2017 with a two-year look-back
period covering calendar years 2016 and 2017 to estimate potential
reporters and projected the lending activities of financial
institutions using their 2017 data as proxies. In generating the
updated estimates provided in this final rule, the Bureau has used data
from 2017 and 2018 with a two-year look-back period covering calendar
years 2017 and 2018 to estimate potential reporters and has projected
the lending activities of financial institutions using their 2018 data
as proxies. In addition, for the estimates provided in the May 2019
Proposal and in this final rule, the Bureau restricted the projected
reporters to only those that actually reported data in the most recent
year of HMDA data considered (2017 for the May 2019 Proposal and 2018
for this final rule).\57\
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\56\ The Bureau stated in the May 2019 Proposal that it intended
to review the 2018 HMDA data more closely in connection with this
rulemaking once the 2018 submissions were more complete. The Bureau
released the 2018 HMDA Data including the two data point articles on
August 30, 2019, and reopened the comment period until October 15,
2019, to give commenters an opportunity to comment on the 2018 HMDA
Data. The estimates reflected in this final rule are based on the
HMDA data collected in 2017 and 2018 as well as other sources.
\57\ The Bureau recognizes that the coverage estimates generated
using this restriction may omit certain financial institutions that
should have reported but did not report in the most recent HMDA
reporting year. However, the Bureau applied this restriction to
ensure that institutions included in its coverage estimates are in
fact financial institutions for purposes of Regulation C because it
recognizes that institutions might not meet the Regulation C
definition of financial institution for reasons that are not evident
in the data sources that it utilized.
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The estimates below compare coverage under these thresholds to
coverage under the current threshold of 25 closed-end mortgage loans.
The estimated effect that increasing the threshold from 25 closed-end
mortgage loans to various higher thresholds would have on the overall
HMDA data, local-level HMDA data, and specific loan products reported
are discussed in turn below.
Effect on covered depository institutions and reportable
originations. For this final rule, the Bureau has considered the impact
that the two alternative proposed thresholds and other possible
thresholds would have on the number of depository institutions that
would report HMDA data and how many originations they would report.\58\
The Bureau estimates that if the closed-end threshold were increased
from 25 to 50, approximately 3,400 out of approximately 4,120
depository institutions covered under the current threshold of 25 (or
approximately 85 percent) would continue to be required to report HMDA
data on closed-end mortgage loans. Further, the Bureau estimates that
if the threshold were increased from 25 to 50, approximately 98.9
percent or approximately 2.89 million total originations of closed-end
mortgage loans in current market conditions reported by depository
institutions under the current Regulation C coverage criteria would
continue to be reported.\59\
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\58\ The estimates for coverage and reportable originations
described in this section cover only depository institutions.
Estimates for coverage of nondepository institutions and reportable
originations of nondepository institutions are described in the
section-by-section analysis of Sec. 1003.2(g)(2)(ii)(A) below. For
estimates that are comprehensive of depository and nondepository
institutions, see part VII.E.2 below.
\59\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 50, about 3,518 out
of about 4,263 depository institutions covered under the current
threshold of 25 (or approximately 83 percent) would continue to
report HMDA data on closed-end mortgage loans, and approximately 99
percent or approximately 3.54 million total originations of closed-
end mortgage loans in current market conditions reported by
depository institutions under the current Regulation C coverage
criteria would continue to be reported. As explained above and in
greater detail in part VII.E.2 below, the differences in the
estimates between the May 2019 Proposal and this final rule are
mostly due to updates made to incorporate the newly available 2018
HMDA data.
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The Bureau estimates that with the closed-end threshold set at 100
under the final rule, approximately 2,480 out of approximately 4,120
depository institutions covered under the current threshold of 25 (or
approximately 60 percent) will continue to be required to report HMDA
data on closed-end mortgage loans. Further, the Bureau estimates that
when the final rule increases the closed-end threshold from 25 to 100
loans, approximately 96 percent or approximately 2.79 million total
originations of closed-end mortgage loans in current market conditions
reported by depository institutions under the current Regulation C
coverage criteria will continue to be reported.\60\
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\60\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 100, about 2,581 out
of about 4,263 depository institutions covered under the current
threshold of 25 (or approximately 61 percent) would continue to
report HMDA data on closed-end mortgage loans, and approximately 90
percent or approximately 3.43 million total originations of closed-
end mortgage loans in current market conditions reported by
depository institutions under the current Regulation C coverage
criteria would continue to be reported. As explained above and in
greater detail in part VII.E.2 below, the differences in the
estimates between the May 2019 Proposal and this final rule are
mostly due to updates made to incorporate the newly available 2018
HMDA data.
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[[Page 28372]]
The Bureau also generated estimates for closed-end thresholds
higher than those that the Bureau proposed. These estimates indicate
that the decrease in the number of depository institutions that would
be required to report HMDA data and the resulting decrease in the HMDA
data that would be reported becomes more pronounced at thresholds
higher than 100. For example, if the closed-end threshold were set at
250, the Bureau estimates that approximately 1,340 out of approximately
4,120 depository institutions covered under the current threshold of 25
(or approximately 32 percent) would continue to be required to report
HMDA data on closed-end mortgage loans. Further, the Bureau estimates
that, if the threshold were set at 250 closed-end mortgage loans,
approximately 89 percent or approximately 2.57 million total
originations of closed-end mortgage loans in current market conditions
reported by depository institutions under the current Regulation C
coverage criteria would continue to be reported.\61\
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\61\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 250, about 1,413 out
of about 4,263 depository institutions covered under the current
threshold of 25 (or approximately 33 percent) would continue to
report HMDA data on closed-end mortgage loans, and approximately 90
percent or approximately 3.21 million total originations of closed-
end mortgage loans in current market conditions reported by
depository institutions under the current Regulation C coverage
criteria would continue to be reported. As explained above and in
greater detail in part VII.E.2 below, the differences in the
estimates between the May 2019 Proposal and this final rule are
mostly due to updates made to incorporate the newly available 2018
HMDA data.
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The Bureau estimates that if the closed-end threshold were set at
500, approximately 720 out of approximately 4,120 depository
institutions covered under the current threshold of 25 (or
approximately 18 percent) would continue to be required to report HMDA
data on closed-end mortgage loans. Further, the Bureau estimates that,
if the threshold were set at 500, approximately 81 percent or
approximately 2.34 million total originations of closed-end mortgage
loans in current market conditions reported by depository institutions
under the current Regulation C coverage criteria would continue to be
reported.\62\
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\62\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 500, about 798 out of
about 4,263 depository institutions covered under the current
threshold of 25 (or approximately 19 percent) would continue to
report HMDA data on closed-end mortgage loans, and approximately 83
percent or approximately 2.97 million total originations of closed-
end mortgage loans in current market conditions reported by
depository institutions under the current Regulation C coverage
criteria would continue to be reported. As explained above and in
greater detail in part VII.E.2 below, the differences in the
estimates between the May 2019 Proposal and this final rule are
mostly due to updates made to incorporate the newly available 2018
HMDA data.
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As described above, many commenters opposed increasing the closed-
end threshold because of concerns that there would be less data with
which to further HMDA's statutory purposes. While the Bureau recognizes
that the increase in the threshold to 100 closed-end mortgage loans
will reduce market coverage compared to the current threshold of 25,
the Bureau estimates that information covering approximately 96 percent
of loans currently reported will still be available to further HMDA's
statutory purposes. The Bureau believes that the small amount of HMDA
data obtained from lower-volume depository institutions does not
justify the costs imposed on those institutions to comply with HMDA
data reporting requirements.
Although a commenter suggested the Bureau increase the closed-end
threshold to 500 to harmonize the thresholds with the EGRRCPA
provisions, the Bureau determines that it is not appropriate to set the
closed-end threshold at 500. Doing so would provide a complete
exclusion from reporting all closed-end data for institutions below the
threshold of 500, even though Congress opted to provide only a partial
exemption at the threshold of 500, and would extend that complete
exclusion to institutions that Congress did not include in even the
partial exemption. The EGRRCPA partial exemption already relieves most
lenders originating fewer than 500 closed-end loans in each of the two
preceding calendar years from the requirement to report many data
points associated with their closed-end transactions.\63\ Providing a
complete exclusion at 500 closed-end mortgage loans would exclude
visibility into approximately 82 percent of institutions covered under
the current threshold of 25 closed-end mortgage loans, which would
result in a significant loss of coverage in closed-end lending and
negatively impact the utility of HMDA data.
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\63\ As discussed in more detail in part VII.E.2 below, about
1,620 of the estimated 2,480 financial institutions that the Bureau
estimates will report closed-end loans at the threshold of 100 are
eligible for a partial exemption under the EGRRCPA. The Bureau
estimates that these partially exempt institutions report only
369,000 out of the estimated 2.7 million closed-end mortgage loans
that will be reported at the threshold of 100.
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Effect on HMDA data at the local level. For the proposal and this
final rule, the Bureau reviewed estimates at varying closed-end
thresholds to examine the potential effect on available data at the
census tract level. The Bureau's estimates of the effect on reportable
HMDA data at the census tract level comprise both depository
institutions and nondepository institutions. The Bureau estimates that,
if the closed-end threshold were raised from 25 to 50, approximately
74,300 out of the approximately 74,600 total census tracts in which
HMDA data are currently reported, or over 99 percent, would retain more
than 80 percent of reportable HMDA data, relative to the current
threshold. The Bureau estimates there would be a decrease of at least
20 percent of reportable HMDA data on closed-end mortgage loans
relative to the current threshold in approximately 300 out of
approximately 74,600 total census tracts in which HMDA data are
currently reported, or less than one-half of 1 percent. With respect to
low-to-moderate income census tracts, if the closed-end threshold were
raised from 25 to 50, the Bureau estimates that, relative to the
current threshold of 25, over 99 percent of low-moderate income census
tracts would retain more than 80 percent of reportable HMDA data, and
there would be at least a 20 percent decrease in reportable HMDA data
on closed-end mortgage loans in less than 1 percent of such tracts. In
addition, the Bureau examined the effects on rural census tracts and
estimates that, relative to the current threshold of 25, more than 98
percent of rural tracts would retain more than 80 percent of reportable
HMDA data, and there would be at least a 20 percent decrease in
reportable HMDA data in just over 1 percent of rural tracts.\64\
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\64\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 50, there would be a
loss of at least 20 percent of reportable HMDA data in just under
300 out of approximately 74,000 total census tracts, or less than
one-half of 1 percent of the total number of census tracts, relative
to the current threshold. For low-to-moderate income census tracts,
the Bureau estimated that there would be a loss of at least 20
percent of reportable HMDA data in less than 1 percent of such
tracts relative to the current threshold, and for rural census
tracts, the Bureau estimated there would be at least a 20 percent
loss of reportable HMDA data in less than one-half of 1 percent of
such tracts relative to the current threshold. As explained above
and in greater detail in part VII.E.2 below, the differences in the
estimates between the May 2019 Proposal and this final rule are
mostly due to updates made to incorporate the newly available 2018
HMDA data.
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[[Page 28373]]
With the threshold of 100 closed-end mortgage loans established by
this final rule, the Bureau estimates that, relative to the current
threshold of 25, approximately 73,400 census tracts out of
approximately 74,600 total census tracts in which HMDA data are
currently reported, or over 98 percent, would retain more than 80
percent of reportable HMDA data. The Bureau estimates that there will
be a decrease of at least 20 percent of reportable HMDA data on closed-
end mortgage loans relative to the current threshold in about 1,200 out
of approximately 74,600 total census tracts in which HMDA data are
currently reported, or under 2 percent. For low-to-moderate income
census tracts, with the threshold of 100 closed-end mortgage loans, the
Bureau estimates that, relative to the current threshold of 25,
approximately 97 percent of such tracts will retain more than 80
percent of reportable HMDA data, and there will be a decrease of at
least 20 percent of reportable HMDA data in approximately 3 percent of
such tracts. The Bureau also estimates that, relative to the current
threshold of 25, approximately 95 percent of rural tracts will retain
more than 80 percent of reportable HMDA data, and there will be a
decrease of at least 20 percent of reportable HMDA data in
approximately 5 percent of such tracts.\65\
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\65\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 100, there would be a
loss of at least 20 percent of reportable HMDA data in about 1,100
out of approximately 74,000 total census tracts, or 1.5 percent of
the total number of census tracts, relative to the current
threshold. For low-to-moderate income census tracts, the Bureau
estimated that there would be a loss of at least 20 percent of
reportable HMDA data in 3 percent of such tracts relative to the
current threshold, and for rural census tracts, the Bureau estimated
there would be at least a 20 percent loss of reportable HMDA data in
less than 3 percent of such tracts relative to the current
threshold. As explained above and in greater detail in part VII.E.2
below, the differences in the estimates between the May 2019
Proposal and this final rule are mostly due to updates made to
incorporate the newly available 2018 HMDA data.
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The Bureau's estimates also reflect that the effect on data
available at the census tract level would become more pronounced at
closed-end mortgage loan thresholds above 100. For example, the Bureau
estimates that, if the threshold were increased from 25 to 250 loans,
approximately 68,800 out of the approximately 74,600 total census
tracts in which HMDA data are currently reported, or over 92 percent,
would retain more than 80 percent of reportable HMDA data, relative to
the current threshold. The Bureau estimates there would be a decrease
of at least 20 percent of reportable HMDA data on closed-end mortgage
loans in about 5,800 out of approximately 74,600 total census tracts in
which HMDA data are currently reported, or about 8 percent of those
census tracts, relative to the current threshold. For low-to-moderate
income census tracts, if the threshold were increased from 25 to 250,
the Bureau estimates that approximately 90 percent of tracts would
retain more than 80 percent of reportable HMDA data, and there would be
a decrease of at least 20 percent of reportable HMDA data in
approximately 10 percent of such tracts, relative to the current
threshold. For rural tracts, the Bureau estimates that approximately 81
percent of tracts would retain more than 80 percent of reportable HMDA
data, and there would be a decrease of at least 20 percent of
reportable HMDA data in approximately 19 percent of such tracts,
relative to the current threshold.\66\
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\66\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 250, there would be a
loss of at least 20 percent of reportable HMDA data in over 4,000
out of approximately 74,000 total census tracts, or 5.4 percent of
the total number of census tracts, relative to the current
threshold. For low-to-moderate income census tracts, the Bureau
estimated that there would be a loss of at least 20 percent of
reportable HMDA data in just over 8 percent of such tracts relative
to the current threshold, and for rural census tracts, the Bureau
estimated there would be at least a 20 percent loss of reportable
HMDA data in about 14 percent of such tracts relative to the current
threshold. As explained above and in greater detail in part VII.E.2
below, the differences in the estimates between the May 2019
Proposal and this final rule are mostly due to updates made to
incorporate the newly available 2018 HMDA data.
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Further, the Bureau estimates that, if the closed-end threshold
were increased from 25 to 500 loans, approximately 60,500 out of
approximately 74,600 total census tracts in which HMDA data are
currently reported, or approximately 81 percent, would retain more than
80 percent of reportable HMDA data. The Bureau estimates there would be
a decrease of at least 20 percent of reportable HMDA data on closed-end
mortgage loans in approximately 14,100, or 19 percent of the total
number of census tracts in which HMDA data are currently reported,
relative to the current threshold of 25. For low-to-moderate income
census tracts, the Bureau estimates that, if the threshold were
increased from 25 to 500, over 78 percent of such tracts would retain
more than 80 percent of reportable HMDA data, and there would be a
decrease of at least 20 percent of reportable HMDA data in over 21
percent of such tracts. For rural census tracts, the Bureau estimates
that approximately 62 percent of such tracts would retain more than 80
percent of reportable HMDA data, and there would be a decrease of at
least 20 percent of reportable HMDA data in approximately 37 percent of
such tracts, relative to the current threshold.\67\
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\67\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 500, there would be a
loss of at least 20 percent of reportable HMDA data in approximately
11,000 out of approximately 74,000 total census tracts, or 14.9
percent of the total number of census tracts, relative to the
current threshold. For low-to-moderate income census tracts, the
Bureau estimated that there would be a loss of at least 20 percent
of reportable HMDA data in 17 percent of such tracts relative to the
current threshold, and for rural census tracts, the Bureau estimated
there would be at least a 20 percent loss of reportable HMDA data in
32 percent of such tracts relative to the current threshold. As
explained above and in greater detail in part VII.E.2 below, the
differences in the estimates between the May 2019 Proposal and this
final rule are mostly due to updates made to incorporate the newly
available 2018 HMDA data.
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The Bureau recognizes that any loan-volume threshold will affect
individual markets differently, depending on the extent to which
smaller creditors service individual markets and the market share of
those creditors. The Bureau concludes, however, based on the estimates
provided above, that the threshold of 100 closed-end loans adopted in
this final rule will provide substantial visibility into rural and low-
to-moderate income tracts and permit the public and public officials to
identify patterns and trends at the local level. At the same time, the
Bureau is concerned that the higher closed-end mortgage loan-volume
thresholds above 100 suggested by industry commenters could have a
material negative impact on the availability of data about patterns and
trends at the local level and could affect the availability of data
necessary to achieve HMDA's purposes.
Specific types of data. The Bureau has also considered the impact
that increasing the threshold could have on data related to specific
types of closed-end lending mentioned by commenters, such as
applications and originations related to multifamily housing and
manufactured housing lending. The Bureau estimates that with the
closed-end threshold increased from 25 to 100 under the final rule,
approximately 87 percent of multifamily loan applications and
originations will continue to be reported by depository and
nondepository institutions combined, when compared to the current
threshold of 25 closed-end mortgage loans in today's market conditions.
Regarding the effect on manufactured housing data, the Bureau estimates
that at a threshold of 100 closed-end mortgage loans, approximately 96
percent of loans and applications related to manufactured housing will
continue to
[[Page 28374]]
be reported by depository and nondepository institutions combined, when
compared to the current threshold of 25 closed-end mortgage loans in
today's market conditions. Increasing the threshold above 100 would
have a more pronounced impact on data regarding both multifamily
housing and manufactured housing lending. Although less data will be
available regarding multifamily housing and manufactured housing
lending at the threshold of 100 than at the current threshold, the
Bureau believes that the limited decreases in the amount of data are
justified by the benefits of relieving smaller-volume institutions of
the burdens of HMDA reporting.
Ongoing Cost Reduction From Threshold of 100
As noted above, small financial institutions and trade associations
commented on the cost of HMDA reporting, suggesting that compliance
costs have had an impact on the ability of small financial institutions
to serve their customers and communities. For the proposal and this
final rule, the Bureau developed estimates for depository and
nondepository institutions combined to determine the savings in annual
ongoing costs at various thresholds.\68\ These estimates illustrate the
cost savings under the various thresholds when compared to the current
threshold of 25.
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\68\ These cost estimates reflect the combined ongoing reduction
in costs for depository and nondepository institutions. These
estimates also take into account the enactment of the EGRRCPA, which
created partial exemptions from HMDA's requirements that certain
insured depository institutions and insured credit unions may use,
and reflect updates made to the cost estimates since the May 2019
Proposal. See part VII.E.2 below for a more comprehensive discussion
of the cost estimates.
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The Bureau estimates that if the closed-end threshold were set at
50, institutions that originate between 25 and 49 closed-end mortgage
loans would save approximately $3.7 million per year in total annual
ongoing costs, relative to the current threshold of 25.\69\ The Bureau
estimates that with a threshold of 100 closed-end mortgage loans
established by the final rule, institutions that originate between 25
and 99 closed-end mortgage loans will save approximately $11.2 million
per year, relative to the current threshold of 25.\70\ With a threshold
of 250 or 500 closed-end mortgage loans, the Bureau estimates that
institutions would save approximately $27.2 million and $45.4 million,
respectively, relative to the current threshold of 25. Based on the
Bureau's estimates, the Bureau believes that the cost reduction from
increasing the threshold from 25 to 100 closed-end mortgage loans is
significant and more than double the cost savings that a threshold of
50 closed-end mortgage loans would have provided, providing meaningful
cost savings to institutions.
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\69\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 50, the aggregate
savings on the operational costs associated with reporting closed-
end mortgage loans would be approximately $2.2 million per year. As
explained above and in greater detail in part VII.E.2 below, the
differences in the estimates between the May 2019 Proposal and this
final rule are mostly due to updates made to incorporate the newly
available 2018 HMDA data.
\70\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 100, the aggregate
savings on the operational costs associated with reporting closed-
end mortgage loans would be approximately $8.1 million per year. As
explained above and in greater detail in part VII.E.2 below, the
differences in the estimates between the May 2019 Proposal and this
final rule are mostly due to updates made to incorporate the newly
available 2018 HMDA data.
---------------------------------------------------------------------------
The Bureau recognizes that the estimated ongoing costs savings
associated with increasing the threshold from 25 to 100 closed-end
loans are less than they would have been absent the relief provided by
the EGRRCPA. Nonetheless, the Bureau determines that these ongoing cost
savings will provide meaningful burden reduction to smaller
institutions that are currently covered at the threshold of 25 closed-
end loans but will be excluded from closed-end reporting under the
increased threshold in this final rule. Avoiding the imposition of such
costs for these affected institutions may also enable smaller
institutions to focus on lending activities and serving their
communities, as suggested by some commenters.
The Bureau concludes that increasing the closed-end threshold to
100 will provide meaningful burden relief for lower-volume depository
institutions while maintaining reporting sufficient to achieve HMDA's
purposes. As discussed above, the Bureau has heard of significant
burdens in complying with the 2015 HMDA Rule, especially from smaller
institutions, and the Bureau has been able to confirm the impact of the
rule and any potential changes to the closed-end threshold, based on
the new 2018 HMDA data. The Bureau recognizes that there is some loss
of data at this threshold but believes that it strikes the right
balance between the burden of collecting and reporting and the benefit
of HMDA data. The Bureau's estimates reflect an estimated decrease of
about 4 percent of total originations by depository institutions
reportable under the current closed-end threshold of 25 in today's
market conditions. According to the Bureau's estimates, about 60
percent of current HMDA reporters that are depository institutions will
continue to report HMDA data, and only approximately 1,200 out of
74,600 census tracts will reflect a decrease of at least 20 percent in
HMDA data from depository and nondepository institutions. Therefore,
the Bureau believes that the decrease in data from institutions that
will be newly excluded with the closed-end threshold set at 100 is
justified by the significant reduction in burden for the approximately
1,640 lower-volume depository institutions that will no longer be
required to report HMDA data when compared to the current threshold of
25. The threshold of 100 closed-end mortgage loans balances the
benefits and burdens of covering institutions engaged in closed-end
mortgage lending by retaining significant coverage of the closed-end
market while excluding from coverage smaller institutions whose limited
closed-end data would be of lesser utility in furthering HMDA's
purposes. For the reasons stated above, the Bureau is amending Sec.
1003.2(g)(1)(v)(A) and comments 2(g)-1 and 2(g)-5 to adjust the
threshold to 100 closed-end mortgage loans. As discussed in part VI.A
below, the change to the closed-end threshold will take effect on July
1, 2020, to provide relief quickly.\71\
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\71\ Thus, as comment 2(g)-1 explains, in 2021, a financial
institution does not meet the loan-volume test described in Sec.
1003.2(g)(1)(v)(A) if it originated fewer than 100 closed-end
mortgage loans during either 2019 or 2020. See part VI.A below for a
discussion of the HMDA obligations for the 2020 data collection year
of institutions affected by the closed-end threshold change, and see
the section-by-section analysis of Sec. 1003.3(c)(11) in this part
for a discussion of optional reporting of 2020 closed-end data
permitted for such institutions.
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2(g)(1)(v)(B)
Section 1003.2(g) defines financial institution for purposes of
Regulation C and conditions Regulation C's institutional coverage, in
part, on the institution's open-end line of credit origination volume.
In the 2015 HMDA Rule, the Bureau established the threshold at 100
open-end lines of credit and required financial institutions that
originate at least 100 open-end lines of credit in each of the two
preceding calendar years to report data on open-end lines of
credit.\72\ In the 2017 HMDA Rule, the Bureau amended Sec. 1003.2(g)
to increase for two years (calendar years 2018 and 2019) the open-end
threshold from 100 to 500 open-end lines of credit. In the May 2019
Proposal, the Bureau proposed to amend
[[Page 28375]]
Sec. 1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5, effective January
1, 2020, to extend until January 1, 2022, the temporary open-end
institutional coverage threshold for depository institutions of 500
open-end lines of credit. Upon expiration of this temporary threshold,
the Bureau proposed to increase the permanent threshold from 100 to 200
open-end lines of credit.\73\ The Bureau sought comments on how the
proposed temporary and permanent increases to the open-end threshold
would affect the number of financial institutions required to report
data on open-end lines of credit, the significance of the data that
would not be available for achieving HMDA's purposes as a result of the
proposed increases, and the reduction in burden that would result from
the proposed increases for institutions that would not be required to
report. In the 2019 HMDA Rule, the Bureau finalized the proposed
extension of the temporary open-end institutional coverage threshold
for depository institutions of 500 open-end lines of credit in Sec.
1003.2(g)(1)(v)(B) until January 1, 2022.\74\ For the reasons discussed
below, the Bureau is now finalizing the proposed amendments to Sec.
1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5 to increase the permanent
threshold from 100 to 200 open-end lines of credit, effective January
1, 2022.
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\72\ Section 1003.3(c)(12) includes a complementary
transactional coverage threshold set at the same level that
determines whether a financial institution is required to collect
and report data on open-end lines of credit.
\73\ The Bureau also proposed conforming changes to the
institutional coverage threshold for nondepository institutions in
Sec. 1003.2(g)(2)(ii)(B) and to the transactional coverage
threshold in Sec. 1003.3(c)(12), as discussed below.
\74\ The Bureau also finalized conforming amendments to extend
for two years the temporary open-end institutional coverage
threshold for nondepository institutions in Sec.
1003.2(g)(2)(ii)(B) and to align the timeframe of the temporary
open-end transactional coverage threshold in Sec. 1003.3(c)(12).
Because the extension of the temporary threshold lasts two years,
and the Bureau had not yet made a determination about its proposed
permanent threshold when it issued the 2019 HMDA Rule, that rule
would have restored effective January 1, 2022 the threshold set in
the 2015 HMDA Rule of 100 open-end lines of credit in Sec. Sec.
1003.2(g) and 1003.3(c)(12) absent this final rule.
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Background on Reporting Data Concerning Open-End Lines of Credit Under
the 2015 HMDA Rule and the 2017 HMDA Rule
By its terms, the definition of ``mortgage loan'' in HMDA covers
all loans secured by residential real property and home improvement
loans, whether open- or closed-end.\75\ However, home-equity lines of
credit were uncommon in the 1970s and early 1980s when Regulation C was
first issued, and the Board's definition of mortgage loan covered only
closed-end loans. In 2000, in response to the increasing importance of
open-end lending in the housing market, the Board proposed to revise
Regulation C to require mandatory reporting of all home-equity lines of
credit, which lenders had the option to report.\76\ However, the
Board's 2002 final rule left open-end reporting voluntary, as the Board
determined that the benefits of mandatory reporting relative to other
then-proposed amendments (such as collecting information about higher-
priced loans) did not justify the increased burden.\77\
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\75\ HMDA section 303(2), 12 U.S.C. 2802(2).
\76\ 65 FR 78656, 78659-60 (Dec. 15, 2000). In 1988, the Board
had amended Regulation C to permit, but not require, financial
institutions to report certain home-equity lines of credit. 53 FR
31683, 31685 (Aug. 19, 1988).
\77\ 67 FR 7222, 7225 (Feb. 15, 2002).
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As discussed in the 2015 HMDA Rule, open-end mortgage lending
continued to increase in the years following the Board's 2002 final
rule, particularly in areas with high home-price appreciation.\78\ In
light of that development and the role that open-end lines of credit
may have played in contributing to the financial crisis,\79\ the Bureau
decided in the 2015 HMDA Rule to require reporting of dwelling-secured,
consumer purpose open-end lines of credit,\80\ concluding that doing so
was a reasonable interpretation of ``mortgage loan'' in HMDA and
necessary and proper to effectuate the purposes of HMDA and prevent
evasions thereof.\81\
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\78\ 80 FR 66128, 66160 (Oct. 28, 2015).
\79\ Id. The Bureau stated in the 2015 HMDA Rule that research
indicated that some real estate investors used open-end, home-
secured lines of credit to purchase non-owner-occupied properties,
which correlated with higher first-mortgage defaults and home-price
depreciation during the financial crisis. Id. In the years leading
up to the crisis, such home-equity lines of credit often were made
and fully drawn more or less simultaneously with first-lien home
purchase loans, essentially creating high loan-to-value home
purchase transactions that were not visible in the HMDA dataset. Id.
\80\ The Bureau also required reporting of applications for, and
originations of, dwelling-secured commercial-purpose lines of credit
for home purchase, home improvement, or refinancing purposes. Id. at
66171.
\81\ Id. at 66157-62. HMDA and Regulation C are designed to
provide citizens and public officials sufficient information about
mortgage lending to ensure that financial institutions are serving
the housing needs of their communities, to assist public officials
in distributing public-sector investment so as to attract private
investment to areas where it is needed, and to assist in identifying
possible discriminatory lending patterns and enforcing
antidiscrimination statutes. The Bureau believes that collecting
information about all dwelling-secured, consumer-purpose open-end
lines of credit serves these purposes.
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As noted in the 2015 HMDA Rule, in expanding coverage to include
mandatory reporting of open-end lines of credit, the Bureau recognized
that doing so would impose one-time and ongoing operational costs on
reporting institutions, that the one-time costs of modifying processes
and systems and training staff to begin open-end line of credit
reporting likely would impose significant costs on some institutions,
and that institutions' ongoing reporting costs would increase as a
function of their open-end lending volume.\82\ The Bureau sought to
avoid imposing these costs on small institutions with limited open-end
lending, where the benefits of reporting the data did not justify the
costs of reporting.\83\ In seeking to draw such a line, the Bureau
acknowledged that it was handicapped by the lack of available data
concerning open-end lending.\84\ This created challenges both in
estimating the distribution of open-end origination volume across
financial institutions and in estimating the one-time and ongoing costs
that institutions of various sizes would be likely to incur in
reporting data on open-end lending.
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\82\ Id. at 66128, 66161.
\83\ Id. at 66149.
\84\ Id.
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To estimate the one-time and ongoing costs of reporting data under
HMDA in the 2015 HMDA Rule, the Bureau identified seven ``dimensions''
of compliance operations and used those to define three broadly
representative financial institutions according to the overall level of
complexity of their compliance operations: ``tier 1'' (high-
complexity), ``tier 2'' (moderate-complexity), and ``tier 3'' (low-
complexity).\85\ The Bureau then sought to estimate one-time and
ongoing costs for a representative institution in each tier.\86\
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\85\ Id. at 66261, 66269-70. In the 2015 HMDA Rule and the 2017
HMDA Rule, the Bureau assigned financial institutions to tiers by
adopting cutoffs based on the estimated open-end line of credit
volume. Id. at 66285; 82 FR 43088, 43128 (Sept. 13, 2017).
Specifically, the Bureau assumed the lenders that originated fewer
than 200 but more than 100 open-end lines of credit were tier 3
(low-complexity) open-end reporters; lenders that originate between
200 and 7,000 open-lines of credit were tier 2 (moderate-complexity)
open-end reporters; and lenders that originated more than 7,000
open-end lines of credit were tier 1 (high-complexity) open-end
reporters. 80 FR 66128, 66285 (Oct. 28, 2015); 82 FR 43088, 43128
(Sept. 13, 2017). As explained below in part VII.D.1, for purposes
of this final rule, the Bureau has used a more precise methodology
to assign excluded financial institutions to tiers 2 and 3 for their
open-end reporting, which relies on constraints relating to the
estimated numbers of impacted institutions and loan/application
register records for the applicable provision.
\86\ 80 FR 66128, 66264-65 (Oct. 28, 2015); see also id. at
66284.
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The Bureau recognized in the 2015 HMDA Rule that the one-time cost
of reporting open-end lines of credit could be substantial because most
financial institutions had not reported open-end lines of credit and
thus would have to
[[Page 28376]]
develop completely new systems to begin reporting these data. As a
result, there would be one-time costs to create processes and systems
for open-end lines of credit.\87\ However, for low-complexity tier 3
institutions, the Bureau believed that the additional one-time costs of
open-end reporting would be relatively low. Because these institutions
are less reliant on information technology systems for HMDA reporting
and they may process open-end lines of credit on the same system and in
the same business unit as closed-end mortgage loans, their one-time
costs would be derived mostly from new training and procedures adopted
for the overall changes in the final rule, not distinct from costs
related to changes in reporting of closed-end mortgage loans.\88\
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\87\ Id. at 66264; see also id. at 66284-85.
\88\ Id. at 66265; see also id. at 66284.
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The Bureau acknowledged in the 2015 HMDA Rule that ongoing costs
for open-end reporting vary by institutions due to many factors, such
as size, operational structure, and product complexity, and that this
variance makes it impossible to provide complete and definitive cost
estimates.\89\ At the same time, the Bureau stated that it believed
that the HMDA reporting process and ongoing operational cost structure
for open-end reporting would be fundamentally similar to closed-end
reporting.\90\ Thus, using the ongoing cost estimates developed for
closed-end reporting, the Bureau estimated that for a representative
high-complexity tier 1 institution the ongoing operational costs would
be $273,000 per year; for a representative moderate-complexity tier 2
institution $43,400 per year; and for a representative low-complexity
tier 3 institution $8,600 per year.\91\ These translated into costs per
HMDA record of approximately $9, $43, and $57 respectively.\92\ The
Bureau acknowledged that, precisely because no good source of publicly
available data existed concerning open-end lines of credit, it was
difficult to predict the accuracy of the Bureau's cost estimates but
also stated its belief that these estimates were reasonably
reliable.\93\
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\89\ Id. at 66285.
\90\ Id.
\91\ Id. at 66264, 66286.
\92\ Id.
\93\ Id. at 66162.
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Drawing on all of these estimates, the Bureau decided in the 2015
HMDA Rule to establish an open-end threshold that would require
institutions that originate 100 or more open-end lines of credit in
each of the two preceding calendar years to report data on such lines
of credit. The Bureau estimated that this threshold would avoid
imposing the burden of establishing mandatory open-end reporting on
approximately 3,000 predominantly smaller-sized institutions with low-
volume open-end lending \94\ and would require reporting by 749
financial institutions, all but 24 of which would also report data on
their closed-end mortgage lending.\95\ The Bureau explained in the 2015
HMDA Rule that it believed this threshold appropriately balanced the
benefits and burdens of covering institutions based on their open-end
mortgage lending.\96\ However, as discussed in the 2017 HMDA Rule, the
Bureau lacked robust data for the estimates that it used to establish
the open-end threshold in the 2015 HMDA Rule.\97\
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\94\ Id. The estimate of the number of institutions that would
be excluded from reporting open-end lines of credit by the
transactional coverage threshold was relative to the number that
would have been covered under the Bureau's proposal that led to the
2015 HMDA Rule. Under that proposal, a financial institution would
have been required to report its open-end lines of credit if it had
originated at least 25 closed-end mortgage loans in each of the two
preceding years without regard to how many open-end lines of credit
the institution originated. See Home Mortgage Disclosure (Regulation
C), 79 FR 51732 (Aug. 29, 2014).
\95\ 80 FR 66128, 66281 (Oct. 28, 2015).
\96\ Id. at 66162.
\97\ 82 FR 43088, 43094 (Sept. 13, 2017).
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The 2017 HMDA Rule explained that, between 2013 and 2017, the
number of dwelling-secured open-end lines of credit financial
institutions originated had increased by 36 percent.\98\ The Bureau
noted that, to the extent institutions that had been originating fewer
than 100 open-end lines of credit shared in that growth, the number of
institutions at the margin that would be required to report under an
open-end threshold of 100 lines of credit would also increase.\99\
Additionally, in the 2017 HMDA Rule, the Bureau explained that
information received by the Bureau since issuing the 2015 HMDA Rule had
caused the Bureau to question its assumption that certain low-
complexity institutions \100\ process home-equity lines of credit on
the same data platforms as closed-end mortgages, on which the Bureau
based its assumption that the one-time costs for these institutions
would be minimal.\101\ After issuing the 2015 HMDA Rule, the Bureau
heard reports suggesting that one-time costs to begin reporting open-
end lines of credit could be as high as $100,000 for such
institutions.\102\ The Bureau likewise heard reports suggesting that
the ongoing costs for these institutions to report open-end lines of
credit, which the Bureau estimated would be under $10,000 per year and
add under $60 per line of credit, could be at least three times higher
than the Bureau had estimated.\103\
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\98\ Id.
\99\ Id.
\100\ See supra notes 85-93 and accompanying text.
\101\ 82 FR 43088, 43094 (Sept. 13, 2017).
\102\ Id.
\103\ Id.
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Based on this information regarding one-time and ongoing costs and
new data indicating that more institutions would have reporting
responsibilities under the 100-loan open-end threshold than estimated
in the 2015 HMDA Rule, the Bureau increased for two years (i.e., until
January 1, 2020) the open-end threshold to 500 in the 2017 HMDA
Rule.\104\ Specifically, the Bureau amended Sec. 1003.2(g)(1)(v)(B)
and comments 2(g)-3 and -5, effective January 1, 2018, to increase
temporarily the open-end threshold from 100 to 500 and, effective
January 1, 2020, to revert to a permanent threshold of 100. This
temporary increase was intended to allow the Bureau to collect
additional data and assess what open-end threshold would best balance
the benefits and burdens of covering institutions.
---------------------------------------------------------------------------
\104\ Id. at 43088. Comments received on the July 2017 HMDA
Proposal to change temporarily the open-end threshold are discussed
in the 2017 HMDA Rule. Id. at 43094-95. In the 2015 HMDA Rule and
the 2017 HMDA Rule, the Bureau declined to retain optional reporting
of open-end lines of credit, after concluding that improved
visibility into this segment of the mortgage market is critical
because of the risks posed by these products to consumers and local
markets and the lack of other publicly available data about these
products. Id. at 43095; 80 FR 66128, 66160-61 (Oct. 28, 2015).
However, Regulation C as amended by the 2017 HMDA Rule permits
voluntary reporting by financial institutions that do not meet the
open-end threshold. 12 CFR 1003.3(c)(12).
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In the May 2019 Proposal, the Bureau proposed to extend until
January 1, 2022, the temporary open-end institutional coverage
threshold for depository institutions of 500 open-end lines of credit.
Upon expiration of this temporary threshold, the Bureau proposed to set
the permanent threshold at 200 open-end lines of credit.\105\ In the
2019 HMDA Rule, the Bureau finalized the proposed two-year extension of
the temporary threshold of 500 open-end lines of credit.\106\ The
Bureau explained that the extension of the temporary threshold would
provide additional time for the Bureau to issue this final rule in 2020
on the permanent open-end threshold and for affected institutions to
prepare for compliance with the final rule.\107\
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\105\ The Bureau proposed conforming amendments to Sec.
1003.3(c)(12).
\106\ 84 FR 57946 (Oct. 29, 2019).
\107\ Id. at 57953.
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[[Page 28377]]
Comments Received on Permanent Open-End Line of Credit Threshold for
Institutional Coverage of Depository Institutions
The Bureau received a number of comments relating to the proposed
permanent increase in the open-end threshold from 100 to 200 open-end
lines of credit in Sec. Sec. 1003.2(g) and 1003.3(c)(12). Commenters
typically discussed the open-end threshold without distinguishing
between the threshold applicable to depository institutions under Sec.
1003.2(g)(1)(v)(B) and the threshold applicable to nondepository
institutions under Sec. 1003.2(g)(2)(ii)(B).
Industry commenters generally expressed support for an increase in
the permanent open-end threshold, indicating that a threshold of 200
open-end lines of credit would be preferable to the threshold of 100
open-end lines of credit that would otherwise take effect beginning in
2022. Many industry commenters described the significant costs that
HMDA data collection and reporting impose on small institutions, and
some expressed concern that they might not be able to offer open-end
lines of credit at all if the threshold of 100 open-end lines of credit
were to take effect. One national trade association and many small
financial institutions stated that open-end lines of credit are crucial
products for borrowers and expressed concern that the costs associated
with reporting such lines of credit would make them unprofitable,
leading banks to either discontinue offering such loans or to pass on
cost increases to consumers. Many industry commenters also suggested
that higher thresholds would allow institutions to focus on making
loans in the communities they serve rather than diverting resources to
HMDA compliance. Another national trade association stated that lenders
may seek to manage their origination volumes to stay below the
applicable open-end threshold, which could limit consumers' access to
credit. This commenter stated that compliance with HMDA requires
specialized staffing and training as well as dedicated software,
policies, and procedures, and that an institution's decision to exceed
the origination volume that triggers open-end reporting would involve a
careful assessment of the time, cost, and risk associated with
implementing and supporting ongoing open-end reporting. Several
commenters stated that there would be significant costs to implementing
open-end reporting for institutions that have not previously reported
such transactions, with one small financial institution stating that it
originated between 100 and 200 open-end lines of credit annually and
that reporting such loans would entail considerable effort because
these transactions are processed by a different department and system
than its reportable closed-end mortgage loans.
Some industry commenters advocating for an increase in the open-end
threshold asserted that data on open-end lines of credit are of limited
value in serving HMDA's statutory purposes. A few national trade
associations stated that open-end lines of credit provide little
information about whether lenders are serving the housing needs of
their communities because such loans are generally used for non-housing
related purposes, such as paying for educational expenses or
consolidating outstanding debt. One national trade association stated
that open-end lending data are of limited value for fair lending
purposes because of the unique features typically present in such
transactions and because only certain borrowers--existing homeowners
with equity in their homes--can obtain them.
A large number of industry commenters recommended that the Bureau
make the temporary threshold of 500 open-end lines of credit permanent
or raise the threshold even higher, such as to 1,000. These commenters
noted that based on the Bureau's estimates, maintaining the current
threshold of 500 open-end lines of credit would relieve approximately
280 institutions from reporting open-end data with only a 6 percent
decrease in the overall number of open-end lines of credit reported
relative to the proposed permanent threshold of 200. One State trade
association expressed concern that the limited increase in open-end
data reported at a permanent threshold of 200 as compared to 500 open-
end lines of credit would not justify the costs for the institutions
that would be newly required to report open-end data. One national
trade association stated that many smaller institutions originate close
to 500 open-end lines of credit annually and that if the permanent
threshold were set at 200 these lenders might curtail their open-end
lending to avoid incurring the additional compliance costs associated
with open-end reporting. A few industry commenters stated that the
continuity that would be provided by a permanent 500 open-end threshold
would be valuable and questioned why the Bureau would set the open-end
threshold at 500 for several years but not retain this threshold.
Although not part of the May 2019 Proposal, many industry commenters
recommended that the Bureau return to optional rather than mandatory
reporting of open-end lines of credit.
Other commenters, including many consumer and civil rights groups,
a bank, a State attorney general, and some members of Congress,
expressed opposition to the proposed increase from 100 to 200 in the
permanent open-end threshold based on their concerns about the
consequences of excluding more institutions and open-end lines of
credit from HMDA reporting. Many of these commenters stated that, in
the years before the 2008 financial crisis, abuses pervaded in open-end
lending that resulted in distress or foreclosure for large numbers of
homeowners. A State attorney general noted that open-end lines of
credit were often extended simultaneously with closed-end home purchase
loans in place of down payments, thus bypassing the need for borrowers
to obtain private mortgage insurance and creating higher debt
obligations that increased the risk to both closed-end mortgage lenders
and borrowers. A large number of consumer groups, civil rights groups,
and other organizations noted in a joint comment letter the Bureau's
estimates in the May 2019 Proposal that increasing the permanent
threshold from 100 to 200 open-end lines of credit would exempt 401
lenders originating 69,000 open-end lines of credit from reporting such
data under HMDA. These commenters expressed concern that too many
lenders and open-end lines of credit might escape public scrutiny at
such a higher permanent threshold and thus make it more likely that
events similar to those that led to the 2008 financial crisis would
occur again.
These consumer groups, civil rights groups, and other organizations
also stated that the 2018 HMDA Data indicated that open-end lines of
credit have a high incidence of features that can be risky for
borrowers, particularly when layered on top of one another. They
explained that the 2018 HMDA Data show that 77 percent of open-end
lines of credit have adjustable rates, 50 percent feature interest-only
payments, and 28 percent include prepayment penalties. These commenters
also stated that the 2018 HMDA Data show that the median interest rate,
as well as the interest rate at the 95th percentile, was significantly
higher for open-end lines of credit than for closed-end mortgage loans
and suggested that the most vulnerable borrowers were obtaining the
open-end lines of credit with the highest interest rates.
These commenters stated further that the increase in open-end
lending
[[Page 28378]]
between 2013 and 2017 discussed in the May 2019 Proposal supports
maintaining the permanent threshold of 100 open-end lines of credit to
increase visibility into open-end lending. A State attorney general
expressed concern that the May 2019 Proposal did not provide a
rationale as to how decreasing open-end reporting by increasing the
permanent open-end threshold serves the purposes of HMDA. This
commenter stated that the Bureau's analysis instead focused almost
entirely on the cost to lenders associated with open-end reporting.
Some members of Congress stated that data on open-end lines of credit
remain limited and noted that the Bureau had to consult multiple
sources to estimate the impact of the proposed changes to the open-end
threshold. These commenters expressed concern that the Bureau would
reduce future open-end reporting based on limited data, particularly in
light of the local and national concerns related to open-end lending
prior to the financial crisis in 2008 cited by the Bureau in the 2015
HMDA Rule.
Final Rule
The Bureau has considered the comments received and, pursuant to
its authority under HMDA section 305(a) as discussed above, has decided
to increase the permanent open-end threshold to 200 open-end lines of
credit, as proposed. As discussed below, the increase in the permanent
threshold from 100 to 200 open-end lines of credit will provide
meaningful burden relief for smaller institutions while still providing
significant market coverage of open-end lending.
As discussed in the May 2019 Proposal, several developments since
the Bureau issued the 2015 HMDA Rule have affected the Bureau's
analyses of the costs and benefits associated with the open-end
threshold. As explained in more detail in part VII below, the estimates
the Bureau used in the 2015 HMDA Rule may understate the burden that
open-end reporting would impose on smaller institutions if they were
required to begin reporting on January 1, 2022. For example, in
developing the one-time cost estimates for open-end lines of credit in
the 2015 HMDA Rule, the Bureau had envisioned that there would be cost
sharing between the line of business that conducts open-end lending and
the line of business that conducts closed-end lending at the corporate
level, as the implementation of open-end reporting that became
mandatory under the 2015 HMDA Rule would coincide with the
implementation of the changes to closed-end reporting under the 2015
HMDA Rule. However, this type of cost sharing is less likely now since
financial institutions have already implemented almost all of the
closed-end reporting changes required under the 2015 HMDA Rule. As
explained in more detail in part VII.E.3, the Bureau's coverage
estimates also indicate that the total number of institutions exceeding
the threshold of 100 open-end lines of credit in 2018 would be
approximately 1,014, which is significantly higher than the estimate of
749 in the 2015 HMDA Rule that was based on 2013 data.\108\
---------------------------------------------------------------------------
\108\ 82 FR 43088, 43094 (Sept. 13, 2017).
---------------------------------------------------------------------------
Another development since the Bureau finalized the 2015 HMDA Rule
is the enactment of the EGRRCPA, which created partial exemptions from
HMDA's requirements that certain insured depository institutions and
insured credit unions may now use.\109\ The partial exemption for open-
end lines of credit under the EGRRCPA relieves certain insured
depository institutions and insured credit unions that originated fewer
than 500 open-end mortgage loans in each of the two preceding calendar
years of the obligation to report many of the data points generally
required by Regulation C.\110\ The EGRRCPA has thus changed the costs
and benefits associated with different coverage thresholds, as the
partial exemptions are available to the vast majority of the depository
financial institutions that originate fewer than 500 open-end lines of
credit annually.\111\
---------------------------------------------------------------------------
\109\ Public Law 115-174, 132 Stat. 1296 (2018).
\110\ See 84 FR 57946 (Oct. 29, 2019).
\111\ See infra part VII.E.3.
---------------------------------------------------------------------------
The Bureau has considered the appropriate permanent open-end
threshold in light of these developments and the comments received in
response to the May 2019 Proposal and the July 2019 Reopening Notice.
On balance, the Bureau determines that the permanent threshold of 200
open-end lines of credit provides sufficient information on open-end
lending to serve HMDA's purposes while appropriately reducing one-time
and ongoing costs for smaller institutions that would be incurred if
the threshold of 100 open-end lines of credit were to take effect.\112\
These considerations are discussed in turn below, and additional
explanation of the Bureau's cost estimates is provided in the Bureau's
analysis under Dodd-Frank Act section 1022(b) in part VII.E.3
below.\113\
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\112\ One commenter expressed concern as to how the increase in
the open-end threshold would serve HMDA's purposes. As discussed
above, this increase in the permanent open-end threshold effectuates
the purposes of HMDA and facilitates compliance with HMDA by
reducing burden, while still providing significant market coverage.
\113\ As explained in part VII below, the Bureau derived these
estimates using estimates of savings for open-end lines of credit
for representative financial institutions.
---------------------------------------------------------------------------
Effect on market coverage. While the increase in the permanent
threshold to 200 open-end lines of credit will reduce market coverage
compared to the threshold of 100 that would otherwise take effect,
information about a sizeable portion of the open-end lending market
will still be available. The Bureau has used multiple data sources,
including credit union Call Reports, Call Reports for banks and
thrifts, HMDA data, and Consumer Credit Panel data, to develop
estimates about open-end originations for institutions that offer open-
end lines of credit and to assess the impact of various thresholds on
the numbers of institutions that report and the number of lines of
credit about which they report under various scenarios.\114\ Based on
this information, the Bureau estimates that, as of 2018, approximately
333 financial institutions originated at least 500 open-end lines of
credit in each of the two preceding years, approximately 613 financial
institutions originated at least 200 open-end lines of credit in each
of the two preceding years, and approximately 1,014 financial
institutions originated at least 100 open-end lines of credit in each
of the two preceding years.\115\ Under the permanent threshold of 200
open-end lines of credit, the Bureau estimates about 1.34 million lines
of credit or approximately 84 percent of origination volume will be
reported by about 9 percent of all institutions providing open-end
lines of credit.\116\ By comparison, the Bureau estimates that about
1.41 million lines of credit or approximately 89 percent of origination
volume would be reported by about 15 percent of all institutions
providing open-end lines of credit if the permanent threshold were to
adjust to
[[Page 28379]]
100 open-end lines of credit. The Bureau determines that the benefits
of the one-time and ongoing cost savings for the estimated 401 affected
institutions originating between 100 and 199 open-end lines of credit,
all but 17 of which are depository financial institutions, justify the
limited decrease in the data reported about open-end lending that will
result from this threshold increase. The permanent threshold of 200
open-end lines of credit balances the benefits and burdens of covering
institutions engaged in open-end mortgage lending by retaining
significant coverage of the open-end market while excluding from
coverage smaller institutions whose limited open-end data would be of
lesser utility in furthering HMDA's purposes.
---------------------------------------------------------------------------
\114\ As noted by several members of Congress, the Bureau
consulted multiple sources to develop its open-end estimates for the
May 2019 Proposal. Because collection of data on open-end lines of
credit only became mandatory starting in 2018 under the 2015 HMDA
Rule and the 2017 HMDA Rule, no single data source existed as of the
time of the May 2019 Proposal that could accurately capture the
number of originations of open-end lines of credit in the entire
market and by lenders. In part VII of this final rule, the Bureau
has supplemented the analyses from the May 2019 Proposal with the
2018 HMDA data. For information about the HMDA data used in
developing and supplementing the Bureau estimates, see infra part
VII.E.3.
\115\ See infra part VII.E.3 at table 4 for estimates of
coverage among all lenders that are active in the open-end line of
credit market at open-end coverage thresholds of 100, 200, and 500.
\116\ Id.
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Additionally, the effect of a threshold of 200 open-end lines of
credit will be limited because the EGRRCPA now provides a partial
exemption that exempts approximately 378 of the estimated 401
institutions that the permanent threshold increase will affect from any
obligation to report many of the data points generally required by
Regulation C for open-end lines of credit. In light of the EGRRCPA's
partial exemption from reporting certain data for open-end lines of
credit for certain insured depository institutions and insured credit
unions, setting the permanent threshold at 200 open-end lines of credit
will result in a much smaller decrease in data than the Bureau
anticipated when it adopted a threshold of 100 open-end lines of credit
in the 2015 HMDA Rule or when it revisited the open-end line of credit
threshold in the 2017 HMDA Rule.
The Bureau declines to increase the permanent threshold further, as
suggested by several commenters. Under a threshold of 500 open-end
lines of credit, the Bureau estimates that about 1.23 million lines of
credit or approximately 78 percent of origination volume would be
reported by about 5 percent of all institutions providing open-end
lines of credit. The Bureau determines that the more significant
reduction in open-end reporting that would result if the current
threshold of 500 open-end lines of credit were permanent, or if the
Bureau increased the threshold to a level above 500, is not warranted.
The temporary threshold of 500 open-end lines of credit was intended to
allow the Bureau time to collect additional data and assess the
appropriate level of the permanent threshold.\117\ Although the Bureau
appreciates some commenters' suggestions regarding the benefits of
continuity that would result from a permanent threshold of 500 open-end
lines of credit, it determines that the permanent threshold of 200
open-end lines of credit adopted in this rule best balances the
benefits and burdens of covering institutions based on their open-end
lending volume. The data about open-end lines of credit that will be
reported at this threshold will assist HMDA data users in understanding
how financial institutions are serving the housing needs of their
communities and assist in the distribution of public sector
investments. The Bureau recognizes, as noted by several commenters,
that open-end lines of credit may be used for non-housing related
purposes, but the Bureau believes the data on these dwelling-secured
loans will further HMDA purposes. The visibility into this segment of
the mortgage market that will result from the permanent threshold of
200 open-end lines of credit, as opposed to a higher threshold, will
also allow for a better understanding of these products and monitoring
of the potential risks, as noted by many commenters, that could be
associated with such loans. Such data could also help to assist in
identifying possible discriminatory lending patterns if, for example,
risky lending practices were concentrated among certain borrowers or
communities.\118\
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\117\ See 84 FR 57946, 57953 (Oct. 29, 2019); 82 FR 43088,
43095-96 (Sept. 13, 2017).
\118\ One commenter suggested that data on open-end lines of
credit are less valuable for fair lending analyses because these
products are limited to borrowers with existing equity in their
homes. In the 2015 HMDA Rule, the Bureau recognized that borrowers
may not be evaluated for open-end credit in the same manner as for
traditional mortgage loans, with adequate home equity being a
factor. It stated further, however, that lending practices during
the financial crisis demonstrated that during prolonged periods of
home-price appreciation lenders became increasingly comfortable
originating home-equity products to borrowers with less and less
equity to spare. 80 FR 66128, 66161 (Oct. 28, 2015). The Bureau
continues to believe that the more leveraged the borrower, the more
at risk the borrower is of losing his or her home. Id.
---------------------------------------------------------------------------
Additionally, and as discussed above, the EGRRCPA partial exemption
already relieves most lenders originating fewer than 500 open-end lines
of credit in each of the two preceding years from the requirement to
report many data points associated with their open-end transactions. In
light of the concerns discussed above and the existing relief provided
by the EGRRCPA at a threshold of 500, the Bureau determines that it is
not appropriate to set the permanent threshold for open-end lines of
credit at 500 or higher. Doing so would provide a complete exclusion
from reporting all open-end data for institutions below the threshold
of 500, even though Congress opted to provide only a partial exemption
at the threshold of 500, and would extend that complete exclusion to
institutions that Congress did not include in even the partial
exemption. For the reasons stated above, the Bureau also declines to
adopt the recommendation of several commenters to return to voluntary
open-end reporting, which it did not propose.\119\
---------------------------------------------------------------------------
\119\ See supra note 104. In establishing partial exemptions for
reporting data on open-end lines of credit in the EGRRCPA, Congress
appears to have assumed that open-end lines of credit should be
reported, building upon the Bureau's decision in the 2015 HMDA Rule
to require reporting of open-end lines of credit.
---------------------------------------------------------------------------
Reduction in one-time costs from permanent threshold of 200. The
Bureau's increase in the permanent open-end threshold to 200 open-end
lines of credit after the temporary extension expires in 2022 will
avoid imposing one-time costs of reporting open-end lines of credit on
institutions originating between 100 and 199 open-end lines of credit.
The Bureau estimates that setting the permanent threshold at 200 rather
than 100 open-end lines of credit will exclude 401 institutions from
reporting open-end lines of credit starting in 2022. According to the
Bureau's estimates, about 309 of those 401 financial institutions are
low-complexity tier 3 open-end reporters, about 92 are moderate-
complexity tier 2 open-end reporters, and none are high-complexity tier
1 reporters.\120\
---------------------------------------------------------------------------
\120\ For an explanation of the Bureau's assumptions in
assigning institutions to tiers 1, 2, and 3, see supra note 85 and
infra part VII.D.1.
---------------------------------------------------------------------------
The Bureau recognizes that, as a small financial institution
commenter discussed, financial institutions may process applications
for open-end lines of credit in different departments and on different
systems than those used for closed-end loans. Many institutions that
would have had to report with a threshold of 100 after the extension of
the temporary threshold of 500 expires in 2022 do not currently report
open-end lines of credit. These institutions might have to develop
completely new reporting infrastructures to comply with mandatory
reporting if the threshold of 100 lines of credit were to take effect,
including new training, software, and policies and procedures. As a
result, these institutions would incur one-time costs to create
processes and systems for reporting open-end lines of credit in
addition to the one-time costs to modify processes and systems used for
reporting other mortgage products.
As explained in part VII below, the Bureau estimates that
increasing the
[[Page 28380]]
threshold from 100 to 200 open-end lines of credit starting in 2022
will result in a one-time cost savings of approximately $3,000 for low-
complexity tier 3 reporters and $250,000 for moderate-complexity tier 2
reporters, for an aggregate savings of about $23.9 million in avoided
one-time costs associated with reporting open-end lines of credit.\121\
The Bureau determines that avoiding the burden on smaller institutions
of implementing open-end reporting, which as commenters noted could
involve setting up entirely new reporting infrastructures distinct from
those used for closed-end mortgage loans, is justified by the limited
decrease in open-end data that will be reported under this final rule,
as discussed in more detail above.
---------------------------------------------------------------------------
\121\ As discussed in more detail in part VII below, the Bureau
has supplemented its analyses from the May 2019 Proposal with 2018
HMDA data. These data allow the Bureau to develop estimates based on
the total number of open-end loan/application register records,
rather than the number of open-end originations. As a result, the
Bureau has assigned more of the estimated 401 institutions affected
by the increase in the threshold from 100 to 200 open-end lines of
credit to the tier 2 category and fewer to the tier 3 category as
compared to the May 2019 Proposal. This increase in the estimated
number of affected tier 2 institutions results in a higher estimated
aggregate one-time cost savings associated with the threshold
increase than the Bureau's estimate of $3.8 million in the May 2019
Proposal. For information about the HMDA data used in developing and
supplementing the Bureau estimates, see infra part VII.E.3.
---------------------------------------------------------------------------
Ongoing cost reduction from permanent threshold of 200. The
increase in the open-end threshold from 100 to 200 open-end lines of
credit starting in 2022 will permanently relieve institutions that
originate between 100 and 199 open-end lines of credit of the ongoing
costs associated with reporting open-end lines of credit that they
might otherwise incur if the threshold of 100 open-end lines of credit
established in the 2015 HMDA Rule were to take effect. As noted above,
many industry commenters expressed how costly and resource-intensive
HMDA compliance can be on an ongoing basis for smaller institutions.
As discussed in more detail in part VII below, the Bureau estimates
that increasing the permanent threshold from 100 to 200 open-end lines
of credit will result in annual ongoing cost savings of approximately
$4,300 for low-complexity tier 3 institutions eligible for the EGRRCPA
partial exemption and $21,900 for moderate-complexity tier 2
institutions eligible for the EGRRCPA partial exemption. For the low-
complexity tier 3 and moderate-complexity tier 2 institutions that are
not eligible for the EGRRCPA partial exemption, the Bureau estimates
that the increase in the permanent threshold from 100 to 200 open-end
lines of credit will result in annual ongoing cost savings of
approximately $8,800 and $44,700, respectively. The Bureau estimates
that the increase in the permanent threshold will result in aggregate
savings on the ongoing operational costs associated with open-end lines
of credit of about $3.7 million per year starting in 2022.\122\ The
Bureau recognizes that the estimated ongoing costs savings associated
with increasing the permanent threshold from 100 to 200 open-end lines
of credit are less than they would have been absent the relief provided
by the EGRRCPA. Nonetheless, the Bureau determines that these ongoing
cost savings, coupled with the one-time cost savings discussed above,
will provide meaningful burden reduction to smaller institutions that
would have been covered at the threshold of 100 open-end lines of
credit but will be excluded from open-end reporting under this final
rule. Avoiding the imposition of such costs for these affected
institutions will also limit any potential for cost increases to
borrowers or other disruptions in open-end lending that could result
from HMDA coverage, as discussed by some commenters.
---------------------------------------------------------------------------
\122\ As noted above, as compared to the May 2019 Proposal the
Bureau now assigns more of the estimated 401 institutions affected
by the increase in the threshold from 100 to 200 to the tier 2
category and fewer to the tier 3 category. As a result, the Bureau's
estimated aggregate savings on ongoing operational costs associated
with the threshold increase is higher than the Bureau's estimate of
$2.1 million in the May 2019 Proposal. For information about the
HMDA data used in developing and supplementing the Bureau estimates,
see infra part VII.E.3.
---------------------------------------------------------------------------
For the reasons discussed above, the Bureau amends Sec.
1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5, to set the open-end
institutional coverage threshold for depository institutions at 200,
effective January 1, 2022.
2(g)(2) Nondepository Financial Institution
HMDA extends reporting responsibilities to certain nondepository
institutions, defined as any person engaged for profit in the business
of mortgage lending other than a bank, savings association, or credit
union.\123\ HMDA section 309(a) authorizes the Bureau to adopt an
exemption for covered nondepository institutions that are comparable
within their respective industries to banks, savings associations, and
credit unions with $10 million or less in assets in the previous fiscal
year.\124\ HMDA sections 303(3)(B) and 303(5) require persons other
than banks, savings associations, and credit unions that are ``engaged
for profit in the business of mortgage lending'' to report HMDA data.
As the Bureau stated in the 2015 HMDA Rule, the Bureau interpreted
these provisions, as the Board did, to evince the intent to exclude
from coverage institutions that make a relatively small volume of
mortgage loans.\125\ In the 2015 HMDA Rule, the Bureau interpreted
``engaged for profit in the business of mortgage lending'' to include
nondepository institutions that originated at least 25 closed-end
mortgage loans or 100 open-end lines of credit in each of the two
preceding calendar years. Due to the questions raised about potential
risks posed to applicants and borrowers by nondepository institutions
and the lack of other publicly available data sources about
nondepository institutions, the Bureau believed that requiring
additional nondepository institutions to report HMDA data would better
effectuate HMDA's purposes. The Bureau estimated in 2015 that these
changes to institutional coverage could result in HMDA coverage for up
to an additional 450 nondepository institutions. The Bureau stated in
the 2015 HMDA Rule its belief that it was important to increase
visibility into the lending practices of nondepository institutions
because of their history of making riskier loans than depository
institutions, including their role in the financial crisis and lack of
available data about the mortgage lending practices of lower-volume
nondepository institutions. The Bureau also stated that expanded
coverage of nondepository institutions would ensure more equal
visibility into the practices of nondepository institutions and
depository institutions.
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\123\ HMDA section 303(5) (defining ``other lending
institutions'').
\124\ HMDA section 309(a), 12 U.S.C. 2808(a).
\125\ 80 FR 66128, 66153 (Oct. 28, 2015) (citing 54 FR 51356,
51358-59 (Dec. 15, 1989)).
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For the reasons discussed below, the Bureau has now determined that
higher thresholds for closed-end mortgage loans and open-end lines of
credit will more appropriately cover nondepository institutions that
``are engaged for profit in the business of mortgage lending'' and
maintain visibility into the lending practices of such institutions.
2(g)(2)(ii)(A)
Regulation C implements HMDA's coverage criteria for nondepository
institutions in Sec. 1003.2(g)(2). The Bureau revised the coverage
criteria for nondepository institutions in the 2015 HMDA Rule by
requiring such
[[Page 28381]]
institutions to report HMDA data if they met the statutory location
test and exceeded either the closed-end or open-end thresholds.\126\ In
the May 2019 Proposal, the Bureau proposed to amend Sec.
1003.2(g)(2)(ii)(A) and related commentary to raise the closed-end
threshold for nondepository institutions to either 50 or,
alternatively, 100 closed-end mortgage loans. For the reasons discussed
below, the Bureau is amending Sec. 1003.2(g)(1)(ii)(A) and related
commentary to raise the threshold to 100 closed-end mortgage loans.
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\126\ Prior to the 2015 HMDA Rule, for-profit nondepository
institutions that met the location test only had to report if: (1)
In the preceding calendar year, the institution originated home
purchase loans, including refinancings of home purchase loans, that
equaled either at least 10 percent of its loan-origination volume,
measured in dollars, or at least $25 million; and (2) On the
preceding December 31, the institution had total assets of more than
$10 million, counting the assets of any parent corporation; or in
the preceding calendar year, the institution originated at least 100
home purchase loans, including refinancings of home purchase loans.
12 CFR 1003.2 (2017).
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Background on Closed-End Mortgage Loan Threshold for Institutional
Coverage of Nondepository Institutions
After issuing the 2015 HMDA Rule and the 2017 HMDA Rule, the Bureau
heard concerns that lower-volume institutions experience significant
burden with the current threshold of 25 closed-end mortgage loans.\127\
Various industry stakeholders advocated for an increase to the closed-
end threshold in order to reduce burden on additional lower-volume
financial institutions. In light of the concerns raised by industry
stakeholders, the Bureau proposed to raise the closed-end threshold for
nondepository institutions and indicated that it was considering
whether a higher threshold would more appropriately cover nondepository
institutions that ``are engaged for profit in the business of mortgage
lending'' and maintain visibility into the lending practices of such
institutions. The Bureau sought comment on whether an increase to the
threshold would more appropriately balance the benefits and burdens of
covering lower-volume nondepository institutions based on their closed-
end lending.
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\127\ The Bureau temporarily raised the threshold for open-end
lines of credit in the 2017 HMDA Rule because of concerns based on
new information that the estimates the Bureau used in the 2015 HMDA
Rule may have understated the burden that open-end reporting would
impose on smaller institutions if they were required to begin
reporting on January 1, 2018. However, the Bureau declined to raise
the threshold for closed-end mortgage loans and stated that in
developing the 2015 HMDA Rule, it had robust data to make a
determination about the number of transactions that would be
reported with a threshold of 25 closed-end mortgage loans as well as
the one-time and ongoing costs to industry. 82 FR 43088, 43095-96
(Sept. 13, 2017).
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The Bureau proposed two alternatives to the closed-end mortgage
loan threshold, and both proposed alternatives would have maintained a
uniform closed-end threshold for depository and nondepository
institutions.\128\ The Bureau sought specific comment on how the
proposed increase to the closed-end threshold would affect the number
of nondepository institutions required to report data on closed-end
mortgage loans, the significance of the data that would not be
available as a result of the proposed increase to the closed-end
threshold, and the reduction in burden that would result from the
proposed increase to the closed-end threshold for nondepository
institutions that would not be required to report.
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\128\ For a discussion on the proposed closed-end coverage
threshold for depository institutions, see the section-by-section
analysis of Sec. 1003.2(g)(1)(v)(A) above.
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Comments Received on Closed-End Threshold for Institutional Coverage
for Nondepository Institutions
As mentioned above, commenters typically discussed the closed-end
threshold without distinguishing between the threshold applicable to
depository institutions under Sec. 1003.2(g)(1)(v)(A) and the
threshold applicable to nondepository institutions under Sec.
1003.2(g)(2)(ii)(A). Comments received regarding the Bureau's proposal
to increase the closed-end threshold are discussed in more detail in
the section-by-section analysis of Sec. 1003.2(g)(1)(v)(A) above.
Final Rule
Pursuant to its authority under HMDA section 305(a), the Bureau is
finalizing the closed-end threshold for nondepository institutions at
100 in Sec. 1003.2(g)(1)(ii)(A). The Bureau has considered the
comments received in response to the May 2019 Proposal and updated
estimates in determining the appropriate threshold. As discussed below,
the Bureau believes that it is reasonable to interpret ``engaged for
profit in the business of mortgage lending'' to include nondepository
institutions that originated at least 100 closed-end mortgage loans in
each of the two preceding calendar years and that doing so will
effectuate the purposes of HMDA and facilitate compliance. The Bureau
believes that increasing the closed-end threshold to 100 will provide
meaningful burden relief for lower-volume nondepository institutions
while maintaining sufficient reporting to achieve HMDA's purposes. The
final rule's uniform loan-volume threshold applicable to depository and
nondepository institutions also maintains the simplicity of this aspect
of the reporting regime, thereby facilitating compliance.\129\
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\129\ The 2015 HMDA Rule simplified the reporting regime by
establishing a uniform loan-volume threshold applicable to
depository and nondepository institutions.
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As explained in the section-by-section analysis of Sec.
1003.2(g)(1)(v)(A) above, a few developments have affected the Bureau's
analyses of the costs and benefits associated with the closed-end
threshold for depository and nondepository institutions since the 2015
HMDA Rule was issued. The Bureau has gathered extensive information
regarding stakeholders' experience with the 2015 HMDA Rule through
comments received in this rulemaking and other feedback. As described
above, the Bureau has heard that financial institutions have
encountered significant burdens in complying with the 2015 HMDA Rule,
and the Bureau is particularly concerned about the increased burdens
faced by smaller institutions. Additionally, the Bureau now has access
to HMDA data from 2018, which was the first year that financial
institutions collected data under the 2015 HMDA Rule, and has used
these data in updating and confirming the estimates included in this
final rule. With the benefit of this additional information about the
2015 HMDA Rule and the new data to supplement the Bureau's analyses,
the Bureau is now in a better position to assess both the benefits and
burdens of the reporting required under the 2015 HMDA Rule.
The Bureau has considered the appropriate closed-end threshold for
nondepository institutions in light of these developments and the
comments received. The Bureau determines that the threshold of 100
closed-end mortgage loans for nondepository institutions provides
sufficient information on closed-end mortgage lending to serve HMDA's
purposes and maintains uniformity with the closed-end threshold for
depository institutions established in this rule, while appropriately
reducing ongoing costs that smaller nondepository institutions are
incurring under the current threshold. These considerations are
discussed in turn below, and additional explanation of the Bureau's
cost estimates is provided in the Bureau's analysis under Dodd-Frank
Act section 1022(b) in part VII.E.2 below.
[[Page 28382]]
Effect on Market Coverage
Similar to the estimates in the section-by-section analysis of
Sec. 1003.2(g)(1)(v)(A), the Bureau developed estimates for
nondepository institution coverage at varying thresholds. Using
multiple data sources, including recent HMDA data \130\ and Call
Reports, the Bureau developed estimates for the two thresholds the
Bureau proposed in the alternative, 50 and 100, as well as the
thresholds of 250 and 500, which many commenters suggested the Bureau
consider.\131\ These estimates compare coverage under these thresholds
to coverage under the current threshold of 25.
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\130\ The Bureau stated in the May 2019 Proposal that it
intended to review the 2018 HMDA data more closely in connection
with this rulemaking once the 2018 submissions were more complete.
The estimates reflected in this final rule are based on the HMDA
data collected in 2017 and 2018 as well as other sources. These
estimates are discussed further in the analysis under Dodd-Frank Act
section 1022(b) in part VII below.
\131\ Except for the estimates provided at the census tract
level, the estimates provided for potential thresholds in this
section cover only nondepository institutions. Estimates for
depository institutions are described in the section-by-section
analysis of Sec. 1003.2(g)(1)(v)(A). For estimates that are
comprehensive of depository and nondepository institutions, see part
VII.E.2 below.
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Similar to the estimates described above for the closed-end
threshold for depository institutions, many of the estimates provided
for the closed-end threshold for nondepository institutions differ
slightly from the initial estimates provided in the May 2019 Proposal.
The estimates in this final rule update the initial estimates provided
in the May 2019 Proposal using the 2018 HMDA data, which were not
available at the time the Bureau developed the May 2019 Proposal. For
the May 2019 Proposal, the Bureau used HMDA data from 2016 and 2017
with a two-year look-back period covering calendar years 2016 and 2017
to estimate potential reporters and projected the lending activities of
financial institutions using their 2017 HMDA data as proxies. In
generating the updated estimates provided in this final rule, the
Bureau used data from 2017 and 2018 with a two-year look-back period
covering calendar years 2017 and 2018 to estimate potential reporters
and has projected the lending activities of financial institutions
using their 2018 data as proxies. In addition, for the estimates
provided in the May 2019 Proposal and in this final rule, the Bureau
restricted the projected reporters to only those that actually reported
data in the most recent year of HMDA data considered (2017 for the May
2019 Proposal and 2018 for this final rule).\132\
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\132\ The Bureau recognizes that the coverage estimates
generated using this restriction may omit certain financial
institutions that should have reported but did not report in the
most recent HMDA reporting year. However, the Bureau applied this
restriction to ensure that institutions included in its coverage
estimates are in fact financial institutions for purposes of
Regulation C because it recognizes that institutions might not meet
the Regulation C definition of financial institution for reasons
that are not evident in the data sources that it utilized.
---------------------------------------------------------------------------
Effect on covered nondepository institutions and reportable
originations. As discussed above, many commenters opposed increasing
the closed-end threshold because of concerns that there would be less
data with which to evaluate whether HMDA's statutory purposes are being
met. However, the Bureau's analysis indicates that the proposed
thresholds of either 50 or 100 closed-end mortgage loans will maintain
sufficient reporting to achieve HMDA's purposes.
If the threshold were increased to 50 closed-end mortgage loans,
the Bureau estimates that approximately 720 out of approximately 740
nondepository institutions covered under the current threshold of 25
(or approximately 97 percent) would continue to be required to report
HMDA data on closed-end mortgage loans. Further, the Bureau estimates
that if the threshold were increased from 25 to 50, this would result
in about 99.97 percent of closed-end mortgage loan originations
currently reported or approximately 3.428 million total closed-end
mortgage loan originations, under current market conditions, that would
continue to be reported by nondepository institutions.\133\
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\133\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 50, about 683 out of
about 697 nondepository institutions covered under the current
threshold of 25 (or approximately 98 percent) would continue to
report HMDA data on closed-end mortgage loans, and over 99 percent
or approximately 3.44 million total originations of closed-end
mortgage loans in current market conditions reported by depository
institutions under the current Regulation C coverage criteria would
continue to be reported. As explained above and in greater detail in
part VII.E.2 below, the differences in the estimates between the May
2019 Proposal and this final rule are mostly due to updates made to
incorporate the newly available 2018 HMDA data.
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The Bureau estimates that with the closed-end threshold set at 100
under the final rule, approximately 680 out of approximately 740
nondepository institutions covered under the current threshold of 25
(or approximately 92 percent) will continue to be required to report
HMDA data on closed-end mortgage loans. Further, the Bureau estimates
that when the final rule increases the threshold to 100, about 99.9
percent of originations of closed-end mortgage loans currently reported
or approximately 3.425 million total originations of closed-end
mortgage loans reported by nondepository institutions, under current
market conditions, will continue to be reported.\134\
---------------------------------------------------------------------------
\134\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 100, about 661 out of
about 697 nondepository institutions covered under the current
threshold of 25 (or approximately 95 percent) would continue to
report HMDA data on closed-end mortgage loans, and over 99 percent
or approximately 3.44 million total originations of closed-end
mortgage loans in current market conditions reported by depository
institutions under the current Regulation C coverage criteria would
continue to be reported. As explained above and in greater detail in
part VII.E.2 below, the differences in the estimates between the May
2019 Proposal and this final rule are mostly due to updates made to
incorporate the newly available 2018 HMDA data.
---------------------------------------------------------------------------
The Bureau also generated estimates for closed-end thresholds
higher than the ones the Bureau proposed, as many commenters suggested
that the Bureau consider thresholds higher than proposed. These
estimates reflect the decrease in the number of nondepository
institutions that would be required to report HMDA data and the
resulting decrease in the HMDA data that would be reported becomes more
pronounced at thresholds higher than 100. For example, if the closed-
end threshold were set at 250, the Bureau estimates that approximately
590 out of approximately 740 nondepository institutions covered under
the current threshold of 25 (or approximately 80 percent) would
continue to be required to report HMDA data on closed-end mortgage
loans. Further, the Bureau estimates that if the threshold were
increased from 25 to 250 loans, this would result in about 99.4 percent
of closed-end mortgage loan originations currently reported or
approximately 3.408 million total closed-end mortgage loan
originations, under current market conditions, that would continue to
be reported by nondepository institutions.\135\ If the closed-end
[[Page 28383]]
threshold were set at 500, the Bureau estimates that approximately 480
out of approximately 740 nondepository institutions covered under the
current threshold of 25 (or approximately 65 percent) would continue to
be required to report HMDA data on closed-end mortgage loans. Further,
the Bureau estimates that if the threshold were increased from 25 to
500 loans, this would result in about 98.2 percent of closed-end
mortgage loan originations currently reported or approximately 3.367
million total closed-end mortgage loan originations, under current
market conditions, that would continue to be reported by nondepository
institutions.\136\
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\135\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 250, about 573 out of
about 697 nondepository institutions covered under the current
threshold of 25 (or approximately 82 percent) would continue to
report HMDA data on closed-end mortgage loans, and about 99 percent
or approximately 3.42 million total originations of closed-end
mortgage loans in current market conditions reported by depository
institutions under the current Regulation C coverage criteria would
continue to be reported. As explained above and in greater detail in
part VII.E.2 below, the differences in the estimates between the May
2019 Proposal and this final rule are mostly due to updates made to
incorporate the newly available 2018 HMDA data.
\136\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 500, about 477 out of
about 697 nondepository institutions covered under the current
threshold of 25 (or approximately 68 percent) would continue to
report HMDA data on closed-end mortgage loans, and about 98 percent
or approximately 3.38 million total originations of closed-end
mortgage loans in current market conditions reported by depository
institutions under the current Regulation C coverage criteria would
continue to be reported. As explained above and in greater detail in
part VII.E.2 below, the differences in the estimates between the May
2019 Proposal and this final rule are mostly due to updates made to
incorporate the newly available 2018 HMDA data.
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The Bureau recognizes the importance of maintaining data about the
lending practices of nondepository institutions. The Bureau also
acknowledges the concerns raised by commenters that setting the
threshold higher than 25 will result in less data, but the Bureau
believes that the modest decrease in data at the threshold of 100
(estimated at less than one percent of data currently reported) will
not undermine enforcement of fair lending laws or regulators' ability
to identify potentially discriminatory lending through HMDA data. The
Bureau believes that retaining approximately 99.9 percent of the data
that would be reported under the current threshold of 25 will result in
nondepository institutions reporting sufficient HMDA data to enable the
public and regulators to monitor risks posed by nondepository
institutions.
Effect on HMDA data at the local level. The Bureau recognizes that
any loan-volume threshold will affect individual markets differently,
depending on the extent to which smaller creditors service individual
markets and the market share of those creditors. For the proposal and
this final rule, the Bureau reviewed estimates at varying closed-end
thresholds to examine the potential effect on available data at the
census tract level. The estimates of the effect on reportable HMDA data
at the census tract level are discussed in the section-by-section
analysis of Sec. 1003.2(g)(1)(v)(A) above. Based on the Bureau's
review of the estimates, the Bureau believes that an increase to the
closed-end threshold from 25 to 100 will result in sufficient data at
the local level, including with respect to rural and low-to-moderate
income census tracts, to further HMDA's purposes.
Specific types of data. As mentioned in the section-by-section
analysis in Sec. 1003.2(g)(1)(v)(A), a number of commenters expressed
concerns about the impact that an increase to the closed-end threshold
would have on HMDA data regarding specific types of loan products, such
as loans for multifamily housing and manufactured housing. The Bureau
believes that data on these types of loan products will still be
available at the threshold of 100 set by this final rule. For example,
the Bureau estimates that with the closed-end threshold increased from
25 to 100 under the final rule, approximately 87 percent of multifamily
loan applications and originations will continue to be reported by
depository and nondepository institutions combined, when compared to
the current threshold of 25 closed-end mortgage loans in today's market
conditions. Regarding the effect on manufactured housing data, the
Bureau estimates that at a threshold of 100 closed-end mortgage loans,
approximately 96 percent of loans and applications related to
manufactured housing will continue to be reported by depository and
nondepository institutions combined, when compared to the current
threshold of 25 closed-end mortgage loans in today's market conditions.
The Bureau's estimates indicate that a significant number of
multifamily housing and manufactured housing loans and applications
under today's market conditions will continue to be reported under the
final rule's threshold of 100.
Ongoing Cost Reduction From Threshold of 100
As noted above, small financial institutions and trade associations
commented on the cost of HMDA reporting, suggesting that compliance
costs have had an impact on the ability of small financial institutions
to serve their communities. For the May 2019 Proposal and this final
rule, the Bureau developed estimates for depository and nondepository
institutions combined to determine the savings in annual ongoing costs
at various thresholds.\137\ The Bureau estimates that if the closed-end
threshold were set at 50, institutions that originate between 25 and 49
closed-end mortgage loans would save approximately $3.7 million per
year in total annual ongoing costs relative to the current threshold of
25.\138\ The Bureau estimates that with the threshold of 100 closed-end
mortgage loans established by the final rule, institutions that
originate between 25 and 99 closed-end mortgage loans will save
approximately $11.2 million per year, relative to the current threshold
of 25.\139\ With a threshold of 250 or 500 closed-end mortgage loans,
the Bureau estimates that institutions would save approximately $27.2
million and $45.4 million, respectively, relative to the current
threshold of 25.
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\137\ These cost estimates reflect the combined ongoing
reduction in costs for depository and nondepository institutions.
These estimates also take into account the enactment of the EGRRCPA,
which created partial exemptions from HMDA's requirements that
certain insured depository institutions and insured credit unions
may use, and reflect updates made to the cost estimates since the
May 2019 Proposal. See part VII.E.2 below for a more comprehensive
discussion of the cost estimates.
\138\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 50, the aggregate
savings on the operational costs associated with reporting closed-
end mortgage loans would be approximately $2.2 million per year. As
explained above and in greater detail in part VII.E.2 below, the
differences in the estimates between the May 2019 Proposal and this
final rule are mostly due to updates made to incorporate the newly
available 2018 HMDA data.
\139\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased from 25 to 100, the aggregate
savings on the operational costs associated with reporting closed-
end mortgage loans would be approximately $8.1 million per year. As
explained above and in greater detail in part VII.E.2 below, the
differences in the estimates between the May 2019 Proposal and this
final rule are mostly due to updates made to incorporate the newly
available 2018 HMDA data.
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The Bureau concludes that increasing the closed-end threshold to
100 will provide meaningful burden reduction for lower-volume
nondepository institutions, while maintaining sufficient reporting to
achieve HMDA's purposes. In the 2015 HMDA Rule, the Bureau expressed
concern that if it were to set the threshold higher than 100, the
resulting decrease into the visibility of the lending practices of
nondepository institutions might hamper the ability of the public and
regulators to monitor risks posed to consumers by those nondepository
institutions.\140\ The Bureau maintains the same concern under this
final rule based on its analysis of various closed-end thresholds using
more recent estimates. For example, if the Bureau were to set the
closed-end threshold for nondepository institutions at 500 as
[[Page 28384]]
suggested by a number of commenters, while an estimated 98.2 percent of
closed-end mortgage originations currently reported under today's
market conditions would continue to be reported, there would be data
reported about the lending patterns of only 65 percent of nondepository
institutions that are reporters under the current threshold of 25. The
Bureau is concerned that an increase to the closed-end threshold higher
than 100 could hamper the ability of the public and regulators to
monitor risks posed to consumers by nondepository institutions. In
comparison, with the Bureau finalizing the closed-end threshold at 100,
an estimated 99.9 percent of nondepository closed-end mortgage
originations currently reported under today's market conditions will
continue to be reported, and there will be data reported about 92
percent of nondepository institutions relative to the current threshold
of 25. The Bureau's estimates suggest that, at the threshold of 100
closed-end mortgage loans established by the final rule, the cost
savings for financial institutions will be meaningful while maintaining
substantial HMDA data for analysis at the national and local
levels.\141\
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\140\ 80 FR 66128, 66281 (Oct. 28, 2015).
\141\ These cost estimates reflect the combined ongoing
reduction in costs for depository and nondepository institutions.
These estimates also take into account the enactment of the EGRRCPA,
which created partial exemptions from HMDA's requirements that
certain insured depository institutions and insured credit unions
may now use. See part VII.E.2 below for a more comprehensive
analysis on cost estimates.
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Based on its analysis, the Bureau believes it is reasonable to
interpret ``engaged for profit in the business of mortgage lending'' to
include nondepository institutions that originated at least 100 closed-
end mortgage loans in each of the two preceding calendar years. The
Bureau determines that this final rule's amendments to Sec.
1003.2(g)(2)(ii)(A) will also effectuate the purposes of HMDA by
ensuring significant coverage of nondepository mortgage lending. A
threshold of 100 closed-end mortgage loans also facilitates compliance
with HMDA by reducing burden on smaller institutions and excluding
nondepository institutions that are not engaged for profit in the
business of mortgage lending. In addition, the final rule's uniform
loan-volume threshold applicable to depository and nondepository
institutions maintains the simplicity of this aspect of the reporting
regime, thereby facilitating compliance.\142\ For the reasons stated
above, the Bureau is amending Sec. 1003.2(g)(2)(ii)(A) to adjust the
closed-end threshold to 100. As discussed in part VI.A below, the
change to the closed-end threshold will take effect on July 1, 2020, to
provide more immediate relief to affected institutions.\143\
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\142\ The 2015 HMDA Rule established the uniform loan-volume
threshold applicable to depository and nondepository institutions to
simplify the reporting regime.
\143\ See section VI for a discussion of the effective dates.
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2(g)(2)(ii)(B)
The 2015 HMDA Rule established a coverage threshold of 100 open-end
lines of credit in Sec. 1003.2(g)(2)(ii)(B) as part of the definition
of nondepository financial institution. As discussed in more detail in
the section-by-section analysis of Sec. 1003.2(g)(1)(v)(B) above, the
2017 HMDA Rule amended Sec. Sec. 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B)
and 1003.3(c)(12) and related commentary to raise temporarily the
threshold to 500 open-end lines of credit for calendar years 2018 and
2019.\144\ In the May 2019 Proposal, the Bureau proposed to extend to
January 1, 2022, Regulation C's temporary threshold of 500 open-end
lines of credit for institutional and transactional coverage of both
depository and nondepository institutions. The Bureau also proposed to
increase the permanent threshold from 100 to 200 open-end lines of
credit at the end of the extension. In the 2019 HMDA Rule, the Bureau
extended for two years the temporary open-end institutional coverage
threshold for nondepository institutions in Sec. 1003.2(g)(2)(ii)(B).
The Bureau is now finalizing as proposed the increase in the permanent
threshold to 200 open-end lines of credit effective January 1, 2022.
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\144\ 82 FR 43088, 43095 (Sept. 13, 2017).
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As noted above, commenters typically discussed the open-end
threshold without distinguishing between the threshold applicable to
depository institutions under Sec. 1003.2(g)(1)(v)(B) and the
threshold applicable to nondepository institutions under Sec.
1003.2(g)(2)(ii)(B). Comments received regarding the proposed increase
in the permanent open-end threshold are discussed in the section-by-
section analysis of Sec. 1003.2(g)(1)(v)(B).
According to the Bureau's estimates, nondepository institutions
account for only a small percentage of the institutions and loans in
the open-end line of credit market.\145\ Table 4 in the Bureau's
analysis under Dodd-Frank Act section 1022(b) in part VII.E.3 below
provides coverage estimates for nondepository institutions at the
permanent threshold of 200 open-end lines of credit that the Bureau is
finalizing. Under the permanent threshold of 200 open-end lines of
credit, the Bureau estimates that about 48,000 open-end lines of credit
or approximately 84 percent of nondepository open-end origination
volume will be reported by approximately 25 nondepository institutions
or about 11 percent of all nondepository institutions providing open-
end lines of credit. By comparison, the Bureau estimates that if the
permanent threshold were set at 100 open-end lines of credit, about
51,000 lines of credit or approximately 89 percent of nondepository
open-end origination volume would be reported by approximately 42
nondepository institutions or about 19 percent of all nondepository
institutions providing open-end lines of credit.
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\145\ See infra part VII.E.3 at table 4.
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For the reasons discussed in the section-by-section analysis of
Sec. 1003.2(g)(1)(v)(B), and to ensure the thresholds are consistent
for depository and nondepository institutions, the Bureau is finalizing
as proposed an increase to Regulation C's permanent open-end threshold
upon expiration of the current temporary open-end threshold. This final
rule increases to 200 the permanent open-end line of credit threshold
for institutional coverage of nondepository institutions in Sec.
1003.2(g)(2)(ii)(B) effective January 1, 2022. This amendment to the
open-end threshold for institutional coverage of nondepository
institutions in Sec. 1003.2(g)(2)(ii)(B) conforms to the amendments
that the Bureau is finalizing with respect to the permanent open-end
threshold for institutional coverage of depository institutions in
Sec. 1003.2(g)(1)(v)(B) and the permanent open-end threshold for
transactional coverage in Sec. 1003.3(c)(12).
Pursuant to its authority under HMDA section 305(a) as discussed
above, the Bureau is finalizing an increase to the permanent threshold
for open-end lines of credit in Sec. 1003.2(g)(2)(ii)(B). Based on its
analysis, the Bureau believes it is reasonable to interpret ``engaged
for profit in the business of mortgage lending'' to include
nondepository institutions that originated at least 200 open-end lines
of credit in each of the two preceding calendar years. The Bureau
determines that this final rule's amendments to Sec.
1003.2(g)(2)(ii)(B) will also effectuate the purposes of HMDA by
ensuring significant coverage of nondepository mortgage lending. This
increase to the permanent threshold also facilitates compliance with
HMDA by reducing burden on smaller institutions and excluding
nondepository institutions that are not engaged for
[[Page 28385]]
profit in the business of mortgage lending. The Bureau determines that
the reasons provided for changing the permanent threshold for
depository institutions in the section-by-section analysis of Sec.
1003.2(g)(1)(v)(B) above apply to the permanent threshold for
nondepository institutions as well. Additionally, the increase in the
permanent threshold in Sec. 1003.2(g)(2)(ii)(B) to 200 open-end lines
of credit will promote consistency, and thereby facilitate compliance,
by subjecting nondepository institutions to the same threshold that
applies to the depository institutions that make up the majority of the
open-end line of credit market.
Section 1003.3 Exempt Institutions and Excluded and Partially Exempt
Transactions
3(c) Excluded Transactions
3(c)(11)
Section 1003.3(c)(11) provides an exclusion from the requirement to
report closed-end mortgage loans for institutions that originated fewer
than 25 closed-end mortgage loans in either of the two preceding
calendar years. This transactional coverage threshold complements the
closed-end mortgage loan reporting threshold included in the definition
of financial institution in Sec. 1003.2(g). In the May 2019 Proposal,
the Bureau proposed to increase Regulation C's closed-end threshold for
institutional and transactional coverage from 25 to either 50 or 100.
Comments regarding the proposed increase to the closed-end coverage
threshold are discussed in the section-by-section analysis of Sec.
1003.2(g)(1)(v)(A). For the reasons discussed in the section-by-section
analysis of Sec. 1003.2(g)(1)(v)(A), the Bureau is now increasing
Regulation C's closed-end threshold for institutional and transactional
coverage from 25 to 100. Therefore, the Bureau is finalizing the
amendments it proposed to Sec. 1003.3(c)(11) and comments 3(c)(11)-1
and -2 to increase the closed-end threshold for transactional coverage
from 25 to 100, with minor clarifying changes.\146\ These amendments
conform to the related changes the Bureau is finalizing with respect to
the closed-end threshold for institutional coverage in Sec. 1003.2(g).
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\146\ In light of the new closed-end and open-end thresholds
adopted in this final rule, the final rule makes minor changes in
comment 3(c)(11)-1 to adjust the years and loan volumes in examples
that illustrate how the thresholds work.
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Although not part of the May 2019 Proposal, the Bureau is also
finalizing additional related amendments to Sec. 1003.3(c)(11) and
comment 3(c)(11)-2 to ensure that institutions affected by the
threshold increase have the option to report data collected in 2020
should they choose to do so. As discussed in part VI.A below, the
change to the closed-end threshold will take effect on July 1, 2020.
The Bureau selected this effective date to ensure that the relief
provided in this final rule is available quickly to affected
institutions, after a number of industry commenters expressed support
for a mid-year effective date. However, a number of commenters also
noted that institutions may have difficulty making changes to their
HMDA operations and might need time to implement changes in response to
the final rule. For example, a State trade association that expressed
support for a mid-year effective date noted that there may be
operational issues that make it difficult for institutions to avail
themselves of the threshold increase in mid-year and requested that the
Bureau allow a transition period for any institution that may need
additional time. The Bureau also recognizes that, since 2020 data
collection is already underway, some affected institutions may wish to
report the HMDA data that they have collected. The Bureau believes that
voluntary reporting of 2020 closed-end data from such institutions
would be beneficial to the HMDA dataset, as long as the data are
submitted for the entire calendar year.
The Bureau is amending Sec. 1003.3(c)(11) and comment 3(c)(11)-2
to allow institutions newly excluded by the final rule the option to
report their 2020 closed-end data. Specifically, the Bureau is amending
Sec. 1003.3(c)(11) to clarify that, for purposes of information
collection in 2020, ``financial institution'' as used in the discussion
of optional reporting in Sec. 1003.3(c)(11) includes an institution
that was a financial institution as of January 1, 2020. Thus, for
purposes of information collection in 2020, an institution that was a
financial institution as of January 1, 2020, may collect, record,
report, and disclose information, as described in Sec. Sec. 1003.4 and
.5, for closed-end mortgage loans excluded under Sec. 1003.3(c)(11),
as though they were covered loans, provided that the institution
complies with such requirements for all applications for closed-end
mortgage loans that it receives, closed-end mortgage loans that it
originates, and closed-end mortgage loans that it purchases that
otherwise would have been covered loans during calendar year 2020. The
amendment to comment 3(c)(11)-2 clarifies that an institution that was
a financial institution as of January 1, 2020, but is not a financial
institution on July 1, 2020, because it originated fewer than 100
closed-end mortgage loans in either 2018 or 2019 is not required in
2021 to report, but may report, applications for, originations of, or
purchases of closed-end mortgage loans for calendar year 2020 that are
excluded transactions because the institution originated fewer than 100
closed-end mortgage loans in either 2018 or 2019. The amendment to
comment 3(c)(11)-2 further clarifies that an institution that was a
financial institution as of January 1, 2020, and chooses to report such
excluded applications for, originations of, or purchases of closed-end
mortgage loans in 2021 must report all such applications for closed-end
mortgage loans that it receives, closed-end mortgage loans that it
originates, and closed-end mortgage loans that it purchases that
otherwise would be covered loans for all of calendar year 2020. These
amendments thus permit an institution that was a financial institution
as of January 1, 2020, but is not a financial institution on July 1,
2020, because it originated fewer than 100 closed-end mortgage loans in
either 2018 or 2019 to report voluntarily in 2021 its closed-end HMDA
data collected in 2020, as long as the institution reports such closed-
end data for the full calendar year 2020.\147\ The Bureau believes that
these amendments are appropriate to ensure that institutions newly
excluded by the mid-year increase in the closed-end threshold in this
final rule have the option to report their 2020 closed-end data should
they choose to do so.
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\147\ Section 1003.3(c)(11) (both currently and as revised) and
comment 3(c)(11)-2 permit a financial institution whose closed-end
mortgage loans are excluded by Sec. 1003.3(c)(11) to report
voluntarily its closed-end data, as long as the financial
institution reports such closed-end data for the full calendar year.
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As explained in part VI below, the amendments to increase the
closed-end threshold, including the amendments to Sec. 1003.3(c)(11)
and comment 3(c)(11)-2 permitting optional reporting of data collected
in 2020, take effect on July 1, 2020. Because the deadline for
reporting of data collected in 2020 (voluntary or otherwise) is March
1, 2021, the amendments to Sec. 1003.3(c)(11) and comment 3(c)(11)-2
relating to optional reporting of data collected in 2020 will no longer
be necessary after 2021. To streamline Regulation C, the final rule
therefore removes these amendments effective January 1, 2022.
3(c)(12)
As adopted in the 2015 HMDA Rule, Sec. 1003.3(c)(12) provides an
exclusion
[[Page 28386]]
from the requirement to report open-end lines of credit for
institutions that did not originate at least 100 such loans in each of
the two preceding calendar years. This transactional coverage threshold
complements the open-end threshold included in the definition of
financial institution in Sec. 1003.2(g), which sets forth Regulation
C's institutional coverage. The 2017 HMDA Rule replaced ``each'' with
``either'' in Sec. 1003.3(c)(11) and (12) to correct a drafting error
and to ensure that the exclusions provided in Sec. 1003.3(c)(11) and
(12) mirror the loan-volume thresholds for financial institutions in
Sec. 1003.2(g).\148\ As discussed in more detail in the section-by-
section analysis of Sec. 1003.2(g), in the 2017 HMDA Rule the Bureau
also amended Sec. Sec. 1003.2(g) and 1003.3(c)(12) and related
commentary to raise temporarily the open-end threshold in those
provisions to 500 lines of credit for calendar years 2018 and
2019.\149\ In the May 2019 Proposal, the Bureau proposed to extend to
January 1, 2022, Regulation C's current temporary open-end threshold
for institutional and transactional coverage of 500 open-end lines of
credit and then to increase the permanent threshold from 100 to 200
open-end lines of credit upon the expiration of the proposed extension
of the temporary threshold. The Bureau stated in the 2019 HMDA Rule
that it intended to address in a separate final rule in 2020 the May
2019 Proposal's proposed amendment to the permanent threshold for open-
end lines of credit. Comments regarding the proposed permanent increase
in the open-end threshold are discussed in the section-by-section
analysis of Sec. 1003.2(g)(1)(v)(B) above.
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\148\ 82 FR 43088, 43102 (Sept. 13, 2017).
\149\ Id. at 43095.
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For the reasons discussed in the section-by-section analysis of
Sec. 1003.2(g)(1)(v)(B), the Bureau is now finalizing as proposed the
increase in the permanent threshold to 200 open-end lines of credit,
effective January 1, 2022. To align the permanent increase in the open-
end threshold for institutional coverage in Sec. 1003.2(g) with the
transactional coverage threshold, the Bureau is also finalizing the
permanent increase in the open-end threshold for transactional coverage
in Sec. 1003.3(c)(12) and comments 3(c)(12)-1 and -2, as proposed,
with minor changes for clarity.\150\
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\150\ In addition to finalizing the proposed changes to comment
3(c)(12)-1, the final rule makes minor changes in comment 3(c)(12)-1
to adjust the years and loan volumes in an example that illustrates
how the open-end line of credit threshold works.
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VI. Effective Dates
In consideration of comments received and for the reasons discussed
below, the Bureau is finalizing the increase in the closed-end
threshold to 100 effective July 1, 2020,\151\ and the adjustment to the
permanent open-end threshold to 200 effective January 1, 2022, when the
current temporary open-end threshold expires.\152\
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\151\ As explained below, institutions that are subject to
HMDA's closed-end requirements prior to the effective date but that
do not meet the new closed-end threshold for calendar year 2020 as
of July 1, 2020 are relieved of the obligation to collect, record,
and report data for their 2020 closed-end mortgage loans effective
July 1, 2020.
\152\ As explained below, the amendments to the open-end
threshold apply to covered loans and applications with respect to
which final action is taken beginning on January 1, 2022.
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A. Closed-End Threshold
In the May 2019 Proposal, the Bureau proposed to amend Sec. Sec.
1003.2(g)(1)(v)(A) and (g)(2)(ii)(A) and 1003.3(c)(11) and related
commentary to raise the closed-end threshold for institutional and
transactional coverage effective January 1, 2020. In the July 2019
Reopening Notice the agency issued in 2019, the Bureau explained that,
due to the reopening of the comment period on the closed-end threshold,
it would not be possible to finalize any change to the closed-end
threshold in time to take effect on the Bureau's originally proposed
effective date of January 1, 2020. The Bureau therefore requested
additional comment on the appropriate effective date for any change to
the closed-end threshold, should the Bureau decide to finalize a
change. The Bureau specifically requested comment on the costs and
benefits of a mid-year effective date during 2020 versus a January 1,
2021 effective date. With respect to the alternative of a mid-year
effective date during 2020, the Bureau also requested comment on the
costs and benefits of specific days of the week or times of the month,
quarter, or year for a new closed-end threshold to take effect and
whether there are any other considerations that the Bureau should
address in a final rule if it were to adopt a mid-year effective date.
Most commenters did not address the effective date question, and
those that did expressed differing views. A number of banks requested
an immediate effective date upon publication of the final rule and
requested elimination of any reporting requirement for 2020 data
collected prior to that date to provide more immediate regulatory
relief. These commenters also asked that the Bureau clarify in the
final rule that applications taken prior to a mid-year effective date,
which would no longer be HMDA reportable after the threshold increase
but for which demographic information was collected, do not violate the
demographic collection rules in Regulations B and C. In a joint comment
letter, a group of trade associations urged the Bureau to finalize the
rule before March 1, 2020 (the deadline for reporting data that
financial institutions collected in 2019) and have it take immediate or
even retroactive effect. A State trade association that supports a mid-
year effective date noted that there may be operational issues that
make it difficult for institutions to avail themselves of the threshold
increase in mid-year and requested that the Bureau allow a transition
for any institution that may need additional time. Other commenters,
including at least one bank, a State credit union league, and a joint
comment submitted on behalf of consumer groups, civil rights groups,
and other organizations, favored a January 1, 2021 effective date.
These commenters noted that institutions may have difficulty making
changes quickly and that implementing changes at the beginning of the
year makes data more consistent and minimizes confusion.
The Bureau has considered the comments received and concludes that
a mid-year effective date for the closed-end threshold is appropriate
to provide burden relief quickly to institutions that would have to
report under the threshold of 25 closed-end mortgage loans but will not
have to report under the threshold of 100 closed-end mortgage
loans.\153\ The amendments relating to the closed-end threshold in
Sec. Sec. 1003.2(g)(1)(v)(A) and (g)(2)(ii)(A) and 1003.3(c)(11) and
related commentary are effective on July 1, 2020.\154\ Thus, in
calendar year 2020, an institution could have been subject to HMDA's
closed-end requirements as of January 1, 2020 because it originated at
least 25 closed-end mortgage loans in 2018 and 2019 and meets all of
the other requirements under Sec. 1003.2(g), but no longer subject to
HMDA's closed-end requirements as of July 1, 2020 (a newly excluded
institution) because it originated fewer than 100 closed-end
[[Page 28387]]
mortgage loans during 2018 or 2019. The final rule relieves newly
excluded institutions of the obligation to collect, record, and report
data for their 2020 closed-end mortgage loans effective July 1, 2020.
Newly excluded institutions may cease collecting 2020 data for closed-
end mortgage loans as of July 1, 2020. Pursuant to Sec. 1003.4(f),
newly excluded institutions must still record data on a loan/
application register for the first quarter of 2020 by 30 calendar days
after the end of the first quarter. They will not, however, be required
to record closed-end data for the second quarter of 2020 because the
deadline under Sec. 1003.4(f) for recording such data falls after July
1, 2020. Because newly excluded institutions collecting HMDA data in
2020 would not otherwise report those data until early 2021, the final
rule also relieves newly excluded institutions of the obligation to
report by March 1, 2021 data collected in 2020 on closed-end mortgage
loans (including closed-end data collected in 2020 before July 1,
2020).
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\153\ The Bureau declines, however, the suggestion of some
commenters that the rule should take immediate or even retroactive
effect. The Bureau believes that the roughly 75-day period between
the final rule's issuance and effective date will provide time for
affected institutions to review the final rule and adjust their
operations in accordance with it.
\154\ As explained below, the final rule also reverses the
amendments relating to optional reporting of 2020 data in Sec.
1003.3(c)(11) and comment 3(c)(11)-2 effective January 1, 2022
because those amendments will have become obsolete by that time.
---------------------------------------------------------------------------
The Bureau appreciates that some newly excluded institutions will
need to continue to collect certain data due to other regulatory
requirements or may wish to continue collecting data for other reasons.
For example, Regulation B includes an independent requirement to
collect information regarding the applicant's ethnicity, race, sex,
marital status, and age where the credit sought is primarily for the
purchase or refinancing of a dwelling that is or will be the
applicant's principal residence and will secure the credit.\155\
Institutions may also decide to continue collecting after the effective
date for other reasons--for example, in order to assess whether they
will be subject to HMDA data collection requirements in 2021 or to
continue monitoring their own operations. As noted above, some
commenters indicated that many smaller institutions might not be able
to change their collection practices quickly.
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\155\ 12 CFR 1002.13.
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To accommodate such institutions, the amendments to Sec.
1003.3(c)(11) and comment 3(c)(11)-2 permit an institution that was a
financial institution as of January 1, 2020 but is not a financial
institution on July 1, 2020 because it originated fewer than 100
closed-end mortgage loans in 2018 or 2019 to report voluntarily in 2021
its closed-end HMDA data collected in 2020, as long as the institution
reports such closed-end data for the full calendar year 2020.\156\
These changes take effect with the other closed-end changes on July 1,
2020 and are discussed in more detail in the section-by-section
analysis of Sec. 1003.3(c)(11). Because the deadline for reporting of
2020 data (voluntary or otherwise) is in 2021, the final rule also
removes the amendments to Sec. 1003.3(c)(11) and comment 3(c)(11)-2
relating to optional reporting of 2020 data effective January 1, 2022.
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\156\ Section 1003.3(c)(11) and comment 3(c)(11)-2 (both
currently and as revised) permit a financial institution whose
closed-end mortgage loans are excluded by Sec. 1003.3(c)(11) to
report voluntarily its closed-end data, as long as the financial
institution reports such closed-end data for the full calendar year.
---------------------------------------------------------------------------
As noted above, a number of industry commenters asked that the
Bureau clarify in its final rule that applications taken prior to a
mid-year effective date, which would no longer be HMDA reportable after
the threshold increase but for which demographic information was
collected, do not violate the rules governing demographic information
collection in Regulations B and C. Newly excluded institutions do not
violate Regulation B or C by collecting demographic information about
applicants before the effective date in accordance with their legal
obligations under Regulation C as that regulation is in effect before
the effective date. As noted above, even after the effective date,
creditors will still be required under Regulation B to collect
information regarding ethnicity, race, sex, marital status, and age
where the credit sought is primarily for the purchase or refinancing of
a dwelling that is or will be the applicant's principal residence and
will secure the credit.\157\ The Bureau recognizes that some newly
excluded institutions may also continue collecting demographic
information for other loans in 2020 after the effective date--for
example, if they need additional time to update their systems and forms
and to retrain employees or if they decide to continue collecting for
the full year and report 2020 data voluntarily in accordance with Sec.
1003.3(c)(11) and comment 3(c)(11)-2. Although Regulation B, 12 CFR
1002.5(b), prohibits creditors from inquiring about the race, color,
religion, national origin, or sex of a credit applicant except under
certain circumstances, the Bureau notes that even after the effective
date, applicable exceptions in Regulation B will permit newly excluded
institutions \158\ to collect information in 2020 about the ethnicity,
race, and sex of applicants for loans that would have been covered
loans absent this final rule.\159\
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\157\ 12 CFR 1002.13.
\158\ As used here, a newly excluded institution means an
institution that was subject to HMDA's closed-end requirements as of
January 1, 2020 because it originated at least 25 closed-end
mortgage loans in 2018 and 2019 and met all of the other
requirements under Sec. 1003.2(g) but is no longer subject to
HMDA's closed-end requirements as of July 1, 2020 due to the final
rule's change to the closed-end threshold.
\159\ For example, Sec. 1002.5(a)(4)(iii) permits creditors
that submitted HMDA data for any of the preceding five calendar
years but that are not currently a financial institution to collect
information regarding the ethnicity, race, and sex of applicants for
loans that would otherwise be covered loans if not excluded by Sec.
1003.3(c)(11) or (12). Section 1002.5(a)(4)(i) permits creditors
that are currently financial institutions due to their open-end
originations to collect information regarding the ethnicity, race,
and sex of an applicant for a closed-end mortgage loan that is an
excluded transaction under Sec. 1003.3(c)(11) if they either: (1)
Report data concerning such closed-end mortgage loans and
applications, or (2) reported closed-end HMDA data for any of the
preceding five calendar years. Additionally, Sec. 1002.5(a)(4)(iv)
permits a ``creditor that exceeded an applicable loan volume
threshold in the first year of the two-year threshold period
provided in 12 CFR 1003.2(g), 1003.3(c)(11), or 1003.3(c)(12)'' to
collect in the second year information regarding the ethnicity,
race, and sex of an applicant for a loan that would otherwise be a
covered loan if not excluded by Sec. 1003.3(c)(11) or (12). In the
unusual circumstances present here, where Regulation C's closed-end
threshold is changing in the middle of 2020, the Bureau interprets
``an applicable loan volume threshold'' as used in Sec.
1002.5(a)(4)(iv) to include, even after the July 1, 2020 effective
date, 25 closed-end mortgage loans for the year 2019 during the
2019-2020 period.
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B. Open-End Threshold
In the May 2019 Proposal, the Bureau proposed to amend Sec. Sec.
1003.2(g)(1)(v)(B) and (g)(2)(ii)(B) and 1003.3(c)(12) and related
commentary to extend to January 1, 2022, the current temporary open-end
threshold of 500 open-end lines of credit and then to set the threshold
permanently at 200 open-end lines of credit beginning in calendar year
2022. In the 2019 HMDA Rule, the Bureau finalized as proposed the two-
year extension of the temporary open-end threshold, effective January
1, 2020. In this final rule the Bureau is adjusting the permanent open-
end threshold to 200 open-end lines of credit. For these amendments,
the Bureau is finalizing the effective date of January 1, 2022, as
proposed, to coincide with the expiration of the current temporary
open-end threshold of 500 open-end lines of credit. As explained below,
the amendments to the open-end threshold apply to covered loans and
applications with respect to which final action is taken beginning
January 1, 2022.
Consistent with feedback provided by industry stakeholders in
connection with the 2015 HMDA Rule and the 2017 HMDA Rule, a number of
commenters indicated in response to the May 2019 Proposal that a long
implementation period is necessary when coverage changes result in new
institutions
[[Page 28388]]
having reporting obligations under HMDA. A few trade associations and
industry commenters suggested the Bureau adopt a transition period or
good-faith efforts standard for compliance with HMDA requirements in
consultation with other regulators.
The Bureau determines that the period of more than 20 months
between this final rule's issuance and the January 1, 2022 effective
date for the adjustment to the open-end threshold will provide newly
covered financial institutions with sufficient time to revise and
update policies and procedures, implement any necessary systems
changes, and train staff before beginning to collect open-end data in
2022. As the Bureau explained in the 2019 HMDA Rule, the two-year
extension of the temporary threshold of 500 open-end lines of credit
ensures that institutions that will be required to report under the new
permanent threshold that takes effect in 2022 will have time to adapt
their systems and prepare for compliance.
Under the permanent open-end threshold of 200 open-end lines of
credit, beginning in calendar year 2022, financial institutions that
originated at least 200 open-end lines of credit in each of the two
preceding calendar years must collect and record data on their open-end
lines of credit pursuant to Sec. 1003.4 and report such data by March
1 of the following calendar year pursuant to Sec. 1003.5(a)(i). As
noted above, this requirement applies to covered loans and applications
with respect to which final action is taken on or after January 1,
2022. For example, if a financial institution described in Sec.
1003.2(g) originated at least 200 open-end lines of credit each year in
2020 and 2021 and takes final action on an application for an open-end
line of credit on February 15, 2022, the financial institution must
collect and record data on that application and report such data by
March 1, 2023. This is true regardless of when the financial
institution received the application.\160\ However, if an institution
originated fewer than 200 open-end lines of credit in either of the two
preceding calendar years, that institution is not required to collect,
record, or report data on its open-end lines of credit for that
calendar year. For example, if an institution originated at least 200
open-end lines of credit in 2020 but fewer than 200 open-end lines of
credit in 2021, that institution does not need to collect, record, or
report any data on open-end lines of credit for which it takes final
action in 2022.
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\160\ The Bureau understands that final action taken on an
application may occur in a different year than the application date.
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VII. Dodd-Frank Act Section 1022(b) Analysis
The Bureau has considered the potential benefits, costs, and
impacts of the final rule.\161\ In developing the final rule, the
Bureau has consulted with or offered to consult with the prudential
regulators (the Board, the Federal Deposit Insurance Corporation
(FDIC), the National Credit Union Administration, and the Office of the
Comptroller of the Currency), the Department of Agriculture, the
Department of Housing and Urban Development (HUD), the Department of
Justice, the Department of the Treasury, the Department of Veterans
Affairs, the Federal Housing Finance Agency, the Federal Trade
Commission, and the Securities and Exchange Commission regarding, among
other things, consistency with any prudential, market, or systemic
objectives administered by such agencies.
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\161\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
calls for the Bureau to consider the potential benefits and costs of
a regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products or services; the impact on depository institutions and
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act; and the impact on consumers
in rural areas.
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As discussed in greater detail elsewhere throughout this
supplementary information, in this rulemaking the Bureau is amending
Regulation C, effective July 1, 2020, to increase the threshold for
reporting data about closed-end mortgage loans to 100 originated
closed-end mortgage loans in each of the two preceding years. In
addition, the Bureau is amending Regulation C to set the open-end
threshold at 200 originated open-end lines of credit in each of the two
preceding years beginning in calendar year 2022.
A. Provisions To Be Analyzed
The final rule contains regulatory or commentary language
(provisions). The discussion below considers the benefits, costs, and
impacts of the following sets of major provisions of the final rule to:
1. Increase the threshold for reporting data about closed-end
mortgage loans from 25 to 100 originations in each of the two preceding
calendar years, effective July 1, 2020; and
2. Set the threshold for reporting data about open-end lines of
credit at 200 originations in each of the two preceding calendar years,
effective January 1, 2022.
With respect to each major provision, the discussion below
considers the benefits, costs, and impacts to consumers and covered
persons. The discussion also addresses comments the Bureau received on
the proposed Dodd-Frank Act section 1022(b) analysis, as well as
certain other comments on the benefits or costs of the relevant
provisions of the May 2019 Proposal that the Bureau is finalizing in
this rule, when doing so is helpful to understanding the Dodd-Frank Act
section 1022(b) analysis. Some commenters that mentioned the benefits
or costs of a provision of the May 2019 Proposal in the context of
commenting on the merits of that provision are addressed in the
relevant section-by-section analysis, above. In this respect, the
Bureau's discussion under Dodd-Frank Act section 1022(b) is not limited
to this discussion in part VII of the final rule.
B. Baselines for Consideration of Costs and Benefits
The Bureau has discretion in any rulemaking to choose an
appropriate scope of analysis with respect to potential benefits,
costs, and impacts and an appropriate baseline.
For the purposes of this analysis, references to the ``first set of
provisions'' in this final rule are to those that increase the
threshold for reporting data about closed-end mortgage loans from 25 to
100 originations in each of the two preceding calendar years, effective
July 1, 2020. Under current Regulation C, absent this final rule,
financial institutions that originated no fewer than 25 closed-end
mortgage loans in each of the two preceding calendar years and meet
other reporting criteria are required to report their closed-end
activity under HMDA; furthermore, depository institutions and credit
unions that originated fewer than 500 closed-end mortgage loans in each
of the two preceding calendar years are generally exempt under the
EGRRCPA from reporting certain data points under HMDA. That is the
baseline adopted for this set of provisions throughout the analyses
presented below.
For the purposes of this analysis, references to the ``second set
of provisions'' in this final rule are to those that set the threshold
for reporting data about open-end lines of credit at 200 originations
in each of the two preceding calendar years, effective January 1, 2022.
In the 2019 HMDA Rule, the Bureau granted two-year temporary relief
(specifically, for 2020 and 2021) for financial institutions that did
not originate at least 500 open-end lines of credit in each of the two
[[Page 28389]]
preceding calendar years. The 2019 HMDA Rule provides that, absent any
future rulemaking, the open-end threshold will revert to 100 open-end
lines of credit starting in 2022, as established in the 2015 HMDA Rule.
This final rule sets the threshold for reporting data about open-end
lines of credit at 200 originations in each of the two preceding
calendar years, effective January 1, 2022. Meanwhile, the EGRRCPA's
partial exemption for open-end lines of credit of eligible insured
depository institutions and insured credit unions took effect on May
24, 2018. Therefore, for the consideration of benefits and costs of
this second set of provisions the Bureau is adopting a baseline in
which the open-end threshold starting in year 2022 is reset at 100
open-end lines of credit in each of the two preceding calendar years,
with some depository institutions and credit unions partially exempt
under the EGRRCPA.
The Bureau notes that the May 2019 proposal's analysis relied on
three separate baselines for each of the three sets of provisions in
the proposal. With regard to the provision to increase the closed-end
threshold from 25 to 100, the Bureau had explained that the appropriate
baseline for this provision is a post-EGRRCPA world in which eligible
financial institutions under the EGRRCPA are already partially exempt
from the reporting of certain data points for closed-end mortgage
loans. And with regard to the provision to set the permanent open-end
threshold at 200, the Bureau had adopted a baseline in which the open-
end coverage threshold starting in year 2020 is reset at 100 open-end
lines of credit in each of the two preceding calendar years with some
depository institutions and credit unions partially exempt under the
EGRRCPA. But for the purpose of this final rule, with the 2019 HMDA
Rule already having incorporated the EGRRCPA changes and finalized the
two-year extension of the temporary open-end threshold, the Bureau can
simplify by using a baseline that includes the 2019 HMDA Rule for the
two provisions being finalized now, with the closed-end analysis using
July 1, 2020 as the baseline, and the open-end analysis using January
1, 2022 as the baseline.
C. Coverage of the Final Rule
Both sets of provisions relieve certain financial institutions from
HMDA's requirements for data points regarding closed-end mortgage loans
or open-end lines of credit that they originate or purchase, or for
which they receive applications, as described further in each section
below. The final rule affects all financial institutions below certain
thresholds as discussed in detail below.
D. Basic Approach of the Bureau's Consideration of Benefits and Costs
and Data Limitations
This discussion relies on data that the Bureau has obtained from
industry, other regulatory agencies, and publicly available sources.
However, as discussed further below, the Bureau's ability to fully
quantify the potential costs, benefits, and impacts of this final rule
is limited in some instances by a scarcity of necessary data.
1. Benefits to Covered Persons
This final rule relates to the institutions and transactions that
are excluded from HMDA's reporting requirements. Both sets of
provisions in this final rule will reduce the regulatory burdens on
covered persons while also decreasing the data reported to serve the
statute's purposes. Therefore, the benefits of these provisions to
covered persons are mainly the reduction of the costs to covered
persons relative to the compliance costs the covered persons would have
to incur under each baseline scenario.
The Bureau's 2015 HMDA Rule, as well as the 2014 proposed rule for
the 2015 HMDA Rule and the material provided to the Small Business
Review Panel leading to the 2015 HMDA Rule, presented a basic framework
of analyzing compliance costs for HMDA reporting, including ongoing
costs and one-time costs for financial institutions. Based on the
Bureau's then study of the HMDA compliance process and costs, with the
help of additional information gathered and verified through the Small
Business Review Panel process, the Bureau classified the operational
activities that financial institutions use for HMDA data collection and
reporting into 18 discrete compliance ``tasks'' which can be grouped
into four ``primary tasks.'' \162\ Recognizing that the cost per loan
of complying with HMDA's requirements differs by financial institution,
the Bureau further identified seven key dimensions of compliance
operations that were significant drivers of compliance costs, including
the reporting system used, the degree of system integration, the degree
of system automation, the compliance program, and the tools for
geocoding, performing completeness checks, and editing. The Bureau
found that the compliance operations of financial institutions tended
to have similar levels of complexity across all seven dimensions. For
example, if a given financial institution had less system integration,
then it tended to use less automation and less complex tools for
geocoding. Financial institutions generally did not use less complex
approaches on one dimension and more complex approaches on another. The
small entity representatives validated this perspective during the
Small Business Review Panel meeting convened under the Small Business
Regulatory Enforcement Fairness Act.\163\
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\162\ These tasks include: (1) Data collection: Transcribing
data, resolving reportability questions, and transferring data to
HMDA Management System (HMS); (2) Reporting and resubmission:
Geocoding, standard annual edit and internal checks, researching
questions, resolving question responses, checking post-submission
edits, filing post-submission documents, creating modified loan/
application register, distributing modified loan/application
register, distributing disclosure statement, and using vendor HMS
software; (3) Compliance and internal audits: Training, internal
audits, and external audits; and (4) HMDA-related exams: Examination
preparation and examination assistance.
\163\ See Bureau of Consumer Fin. Prot., ``Final Report of the
Small Business Review Panel on the CFPB's Proposals Under
Consideration for the Home Mortgage Disclosure Act (HMDA)
Rulemaking'' 22, 37 (Apr. 24, 2014), http://files.consumerfinance.gov/f/201407_cfpb_report_hmda_sbrefa.pdf.
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The Bureau realizes that costs vary by institution due to many
factors, such as size, operational structure, and product complexity,
and that this variance exists on a continuum that is impossible to
fully represent. To consider costs in a practical and meaningful way,
in the 2015 HMDA Rule the Bureau adopted an approach that focused on
three representative tiers of financial institutions. In particular, to
capture the relationships between operational complexity and compliance
cost, the Bureau used the seven key dimensions noted above to define
three broadly representative financial institutions according to the
overall level of complexity of their compliance operations. Tier 1
denotes a representative financial institution with the highest level
of complexity, tier 2 denotes a representative financial institution
with a moderate level of complexity, and tier 3 denotes a
representative financial institution with the lowest level of
complexity. For each tier, the Bureau developed a separate set of
assumptions and cost estimates.
Table 1 below provides an overview of all three representative
tiers across the seven dimensions of compliance operations: \164\
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\164\ The Bureau notes this description has taken into account
the operational improvements the Bureau has implemented regarding
HMDA reporting since issuing the 2015 HMDA Rule and differs slightly
from the original taxonomy in the 2015 HMDA Rule that reflected the
technology at the time of the study.
[[Page 28390]]
Table 1--Types of HMDA Reporters \1\
----------------------------------------------------------------------------------------------------------------
Tier 3 FIs tend to . . . Tier 2 FIs tend to . . . Tier 1 FIs tend to . . .
----------------------------------------------------------------------------------------------------------------
Systems....................... Enter data in Excel loan/ Use LOS and HMS; Submit Use multiple LOS, central
application register data via the HMDA SoR, HMS; Submit data
Formatting Tool. Platform. via the HMDA Platform.
Integration................... (None).................... Have forward integration Have backward and forward
(LOS to HMS). integration; Integration
with public HMDA APIs.
Automation.................... Manually enter data into Loan/application register Loan/application register
loan/application register file produced by HMS; file produced by HMS;
Formatting Tool; review review edits in HMS and high automation
and verify edits in the HMDA platform; verify compiling file and
HMDA Platform. edits via HMDA Platform. reviewing edits; verify
edits via the HMDA
platform.
Geocoding..................... Use FFIEC tool (manual)... Use batch processing..... Use batch processing with
multiple sources.
Completeness Checks........... Check in HMDA Platform Use LOS, which includes Use multiple stages of
only. completeness checks. checks.
Edits......................... Use FFIEC Edits only...... Use FFIEC and customized Use FFIEC and customized
edits. edits run multiple
times.
Compliance Program............ Have a joint compliance Have basic internal and Have in-depth accuracy
and audit office. external accuracy audit. and fair lending audit.
----------------------------------------------------------------------------------------------------------------
\1\ FI is ``financial institution''; LOS is ``Loan Origination System''; HMS is ``HMDA Data Management
Software''; SoR is ``System of Record.''
For a representative institution in each tier, in the 2015 HMDA
Rule the Bureau produced a series of estimates of the costs of
compliance, including the ongoing costs that financial institutions
incurred prior to the implementation of the 2015 HMDA Rule, and the
changes to the ongoing costs due to the 2015 HMDA Rule. The Bureau
further provided the breakdown of the changes to the ongoing costs due
to each major provision in the 2015 HMDA Rule, which includes the
changes to the scope of the institutional coverage, the change to the
scope of the transactional coverage, the revisions to the existing data
points (as before the 2015 HMDA Rule) and the addition of new data
points by the 2015 HMDA Rule.
For the impact analysis in this final rule, the Bureau is utilizing
the cost estimates provided in the 2015 HMDA Rule for the
representative financial institution in each of the three tiers, with
some updates, mainly to reflect the inflation rate. In addition, for
the financial institutions eligible for partial exemptions under the
EGRRCPA, the Bureau is making updates to align the partially exempt
data points (and data fields used to report these data points) with the
cost impact analyses discussed in the impact analyses for the 2015 HMDA
Rule. The Bureau's analyses below also take into account the
operational improvements that have been implemented by the Bureau
regarding HMDA reporting since the issuance of the 2015 HMDA Rule. The
details of such analyses are contained in the following sections
addressing the two sets of provisions of this final rule.
The Bureau received a number of comments relating to the benefits
to covered persons of the May 2019 Proposal, both in response to the
original proposal and in response to the July 2019 Reopening Notice,
and it has considered these comments in finalizing this rule. Many
industry commenters reported that they expend substantial resources on
HMDA compliance that they could instead use for other purposes or that
they have structured their lines of business to ensure they are not
required to report under HMDA. Some cited, for example, the burden of
establishing procedures, purchasing reporting software, and training
staff to comply with HMDA, and noted that compliance can be
particularly difficult for smaller institutions with limited staff. A
trade association commented that the Bureau's estimates do not account
for the reduction in examination burdens and the resources diverted to
HMDA compliance from other more productive activities. It also asserted
that the Bureau's burden analysis did not properly address data
security costs associated with HMDA collection and reporting. Another
trade association suggested that the three-tiered approach to
estimating costs does not seem to account for the unique challenges of
adapting business and multifamily lending to HMDA regulations and HMDA
reporting infrastructure designed with single-family consumer mortgage
lending in mind.
In their comments, consumer groups, civil rights groups, and other
nonprofit organizations stated that Federal agency fair lending and CRA
exams will become more burdensome for Federal agencies and the HMDA-
exempt lenders since the agencies will now have to ask for internal
data from the lenders instead of being able to use the HMDA data. They
also noted that smaller-volume lenders already benefit from the
EGRRCPA's partial exemptions and stated that almost all of the data
that such institutions must report under HMDA would already need to be
collected to comply with other statutes like the Truth in Lending Act,
to sell loans to Fannie Mae or Freddie Mac, or to acquire Federal
Housing Administration insurance for loans. A nonprofit organization
that does HMDA-related research commented that it is hard to imagine
that a bank would not keep an electronic record of its lending, even if
it were not subject to HMDA reporting.
The Bureau has considered these comments and concludes, as it did
in the 2019 HMDA Rule, that they do not undermine the Bureau's approach
or cost parameters used in part VI of the May 2019 Proposal. For
example, the activities that many industry commenters described as
burdensome--including scrubbing data, training personnel, and preparing
for HMDA-related examinations--are consistent with and captured by the
18 discrete compliance ``tasks'' that the Bureau identified through its
study of the HMDA compliance process and costs in the 2015 HMDA
rulemaking. As part of its analysis, the Bureau also recognized that
costs vary by institution due to many factors, such as size,
operational structure, and product complexity, and adopted a tiered
framework to capture
[[Page 28391]]
the relationships between operational complexity and compliance cost.
While some products are more costly than others to report, the three-
tiered framework uses representative institutions to capture this type
of variability and estimate overall costs of HMDA reporting. In
estimating compliance costs associated with HMDA reporting through this
framework, the Bureau also recognized that much of the information
required for HMDA reporting is information that financial institutions
would need to collect, retain, and secure as part of their lending
process, even if they were not subject to HMDA reporting. The Bureau
therefore does not believe that the comments received provide a basis
for departing from the approach for analyzing costs and benefits for
covered persons used in part VI of the May 2019 Proposal.
The next step of the Bureau's consideration of the reduction of
costs for covered persons involved aggregating the institution-level
estimates of the cost reduction under each set of provisions up to the
market-level. This aggregation required estimates of the total number
of potentially impacted financial institutions and their total number
of loan/application register records. The Bureau used a wide range of
data in conducting this task, including recent HMDA data,\165\ Call
Reports, and Consumer Credit Panel data. These analyses were
challenging, because no single data source provided complete coverage
of all the financial institutions that could be impacted and because
there is varying data quality among the different sources.
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\165\ The majority of the analyses in part VI of the May 2019
Proposal were conducted prior to the official submission deadline of
the 2018 HMDA data on March 1, 2019, and 2017 was the most recent
year of HMDA data the Bureau used for the analyses presented in the
May 2019 Proposal. For this part of the final rule, the Bureau has
supplemented the analyses with the 2018 HMDA data. The majority of
the analyses for this final rule were conducted prior to the
official submission deadline of the 2019 HMDA data on March 2, 2020.
As of the date of issuance of this final rule, the Bureau is
processing the 2019 HMDA loan/application register submissions and
checking data quality, and some financial institutions are
continuing to revise and resubmit their 2019 HMDA data. Accordingly,
the Bureau has not considered the 2019 HMDA data in the analyses for
this final rule. The Bureau notes the market may fluctuate from year
to year, and the Bureau's rulemaking is not geared towards such
transitory changes on an annual basis but is instead based on larger
trends.
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To perform the aggregation, the Bureau mapped the potentially
impacted financial institutions to the three tiers described above. For
each of the provisions analyzed, the Bureau assumed none of the changes
would affect the high-complexity tier 1 reporters. The Bureau then
assigned the potentially impacted financial institutions to either tier
2 or tier 3. In doing so, the Bureau relied on two constraints: (1) The
estimated number of impacted institutions in tiers 2 and 3, combined,
must equal the estimated number of impacted institutions for the
applicable provision, and (2) the number of loan/application register
records submitted annually by the impacted financial institutions in
tiers 2 and 3, combined, must equal the estimated number of loan/
application register records for the applicable provision. As in the
2015 HMDA Rule, the Bureau assumed for closed-end reporting that a
representative low-complexity tier 3 financial institution has 50
closed-end mortgage loan HMDA loan/application register records per
year and a representative moderate-complexity tier 2 financial
institution has 1,000 closed-end mortgage loan HMDA loan/application
register records per year. Similarly, the Bureau assumed for open-end
reporting that a representative low-complexity tier 3 financial
institution has 150 open-end HMDA loan/application register records per
year and a representative moderate-complexity tier 2 financial
institution has 1,000 open-end HMDA loan/application register records
per year. Constraining the total number of impacted institutions and
the number of impacted loan/application register records across tier 2
and tier 3 to the aggregate estimates thus enables the Bureau to
calculate the approximate numbers of impacted institutions in tiers 2
and 3 for each set of provisions.\166\
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\166\ See supra note 85.
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Multiplying the impact estimates for representative financial
institutions in each tier by the estimated number of impacted
institutions, the Bureau arrived at the market-level estimates.
2. Costs to Covered Persons
In general, and as discussed in part VII.D.1 above, both sets of
provisions in this final rule will reduce the ongoing operational costs
associated with HMDA reporting for the affected covered persons. In the
interim, it is possible that to adapt to the rule, covered persons may
incur certain one-time costs. Such one-time costs are mostly related to
training and system changes in covered persons' HMDA reporting/loan
origination systems. Based on the Bureau's outreach to industry,
however, the Bureau believes that such one-time costs are fairly small.
Commenters did not indicate that covered persons who would be excluded
completely from reporting HMDA data would incur significant costs,
either for closed-end mortgage loans or for open-end lines of credit,
or both.
3. Benefits to Consumers
Having generated estimates of the changes in ongoing costs and one-
time costs to covered financial institutions, the Bureau then can
attempt to estimate the potential pass-through of such cost reduction
from these institutions to consumers, which could benefit consumers and
affect credit access. According to economic theory, in a perfectly
competitive market where financial institutions are profit maximizers,
the affected financial institutions would pass on to consumers the
marginal, i.e., variable, cost savings per application or origination,
and absorb the one-time and increased fixed costs of complying with the
rule. The Bureau estimated in the 2015 HMDA Rule the impacts on the
variable costs of the representative financial institutions in each
tier due to various provisions of that rule. Similarly, the estimates
of the pass-through effect from covered persons to consumers due to the
provisions under this rule are based on the relevant estimates of the
changes to the variable costs in the 2015 HMDA Rule with some updates.
The Bureau notes that the market structure in the consumer mortgage
lending markets may differ from that of a perfectly competitive market
(for instance due to information asymmetry between lenders and
borrowers) in which case the pass-through to the consumers would most
likely be smaller than the pass-through under the perfect competition
assumption.\167\
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\167\ The further the market moves away from a perfectly
competitive market, the smaller the pass-through would be.
---------------------------------------------------------------------------
In the May 2019 Proposal, the Bureau requested additional comments
on the potential pass-through from financial institutions to consumers
due to the reduction in reporting costs. A trade association commented
that it believed that the proposed higher thresholds will move mortgage
markets to more perfect competition. It suggested that institutions
that currently manage their origination volumes to stay below HMDA
reporting thresholds will be incentivized to increase operations and
that, by being able to offer savings on fees and pricing, and by being
more competitive due to lower productions costs, smaller banks will be
able to enter the mortgage market at more profitable levels. However,
as the Bureau noted in the 2019 HMDA Rule, this comment did
[[Page 28392]]
not provide specific estimates that the Bureau can utilize in refining
the analyses.
4. Cost to Consumers
HMDA is a sunshine statute. The purposes of HMDA are to provide the
public with loan data that can be used: (i) To help determine whether
financial institutions are serving the housing needs of their
communities; (ii) to assist public officials in distributing public-
sector investment so as to attract private investment to areas where it
is needed; and (iii) to assist in identifying possible discriminatory
lending patterns and enforcing antidiscrimination statutes.\168\ The
provisions in this final rule, as adopted, lessen the reporting
requirements for excluded financial institutions by relieving them of
the obligation to report all data points related to either closed-end
mortgage loans or open-end lines of credit. As a sunshine statute
regarding data reporting and disclosure, most of the benefits of HMDA
are realized indirectly. With less data required to be collected and
reported under HMDA, the HMDA data available to serve HMDA's statutory
purposes will decline.\169\ However, to quantify the reduction of such
benefits to consumers presents substantial challenges. The Bureau
sought comment on the magnitude of the loss of HMDA benefits from these
changes to the available data and/or methodologies for measuring these
effects in the May 2019 Proposal.
---------------------------------------------------------------------------
\168\ 12 CFR 1003.1(b).
\169\ The changes in this final rule will reduce public
information regarding whether financial institutions are serving the
needs of their communities. To the extent that these data are used
for other purposes, the loss of data could result in other costs.
---------------------------------------------------------------------------
The Bureau received a number of comments emphasizing the loss of
HMDA benefits from decreased information lenders would report under
HMDA were the May 2019 Proposal to be finalized. For example, a group
of 148 local and national organizations stated that raising reporting
thresholds will lead to another round of abusive and discriminatory
lending similar to abuses that occurred in the years before the
financial crisis. These commenters also stated that the general public,
researchers, and Federal agencies will have an incomplete picture of
lending trends in thousands of census tracts and neighborhoods if
affected institutions no longer report HMDA data. Additionally, a State
attorney general stated that the May 2019 Proposal failed to fully
account for the harms that would be imposed by the proposal, including
the costs to States in losing access to helpful data. However, as the
Bureau noted in the 2019 HMDA Rule, none of these commenters provided
specific quantifiable estimates of the loss of benefits from decreased
information lenders would report under HMDA.
The Bureau acknowledges that quantifying and monetizing benefits of
HMDA to consumers would require identifying all possible uses of HMDA
data, establishing causal links to the resulting public benefits, and
then quantifying the magnitude of these benefits. For instance,
quantification would require measuring the impact of increased
transparency on financial institution behavior, the need for public and
private investment, the housing needs of communities, the number of
financial institutions potentially engaging in discriminatory or
predatory behavior, and the number of consumers currently being
unfairly disadvantaged and the level of quantifiable damage from such
disadvantage. Similarly, for the impact analyses of this final rule,
the Bureau is unable to readily quantify the loss of some of the HMDA
benefits to consumers with precision, both because the Bureau does not
have the data to quantify all HMDA benefits and because the Bureau is
not able to assess completely how this final rule will reduce those
benefits.
In light of these data limitations, the discussion below generally
provides a qualitative (not quantitative) consideration of the costs,
i.e., the potential loss of HMDA benefits to consumers from the rule.
E. Potential Benefits and Costs to Consumers and Covered Persons
1. Overall Summary
In this section, the Bureau presents a concise, high-level table
summarizing the benefits and costs considered in the remainder of the
discussion. This table is not intended to capture all details and
nuances that are provided both in the rest of the analysis and in the
section-by-section discussion above. Instead, it provides an overview
of the major benefits and costs of the final rule, including the
provisions to be analyzed, the baseline chosen for each set of
provisions, the sub-provisions to be analyzed, the implementation dates
of the sub-provisions, the annual savings on the operational costs of
covered persons due to the sub-provisions, the impact on the one-time
costs of covered persons due to the sub-provision, and generally how
the provisions in the final rule affect HMDA's benefits.
Table 2--Overview of Major Potential Benefits and Costs of the Final Rule
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Savings on annual Loss of data
Provisions to be analyzed Baseline Baseline threshold New threshold Implementation date operational costs Impact on one time costs coverage
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increasing Closed-end Mortgage 2015 and 2017 HMDA 25 originations in 100 originations Effective July 1, 2020. $6.4 M................... Negligible............... Complete exclusion
Loan Coverage Threshold. Rules, EGRRCPA, each of two in each of two of reporting of
2019 HMDA Rule. preceding preceding approximately
calendar years. calendar years. 1,700 reporters
with about
112,000 closed-
end mortgage
loans.
Increasing Open-end Line of 2015 and 2017 HMDA 100 originations 200 originations Effective January 1, $3.7 M................... Savings of $23.9 M....... Complete exclusion
Credit Coverage Threshold. Rules, EGRRCPA, in each of two in each of two 2022. of reporting of
2019 HMDA Rule. preceding preceding approximately 400
calendar years. calendar years. reporters with
about 69,000 open-
end line of
credit
originations.
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[[Page 28393]]
2. Provisions to Increase the Closed-End Threshold
Scope of the Provisions
The final rule increases the thresholds for reporting data about
closed-end mortgage loans so that financial institutions originating
fewer than 100 closed-end mortgage loans in either of the two preceding
calendar years are excluded from HMDA's requirements for closed-end
mortgage loans effective July 1, 2020.
The 2015 HMDA Rule requires institutions that originated at least
25 closed-end mortgage loans in each of the two preceding calendar
years and meet all other reporting criteria to report their closed-end
mortgage applications and loans. The EGRRCPA provides a partial
exemption for insured depository institutions and insured credit unions
that originated fewer than 500 closed-end mortgage loans in each of the
two preceding years and do not have certain less than satisfactory CRA
examination ratings. This section considers the provisions in the final
rule that increase the closed-end loan threshold to 100 so that only
financial institutions that originated at least 100 closed-end mortgage
loans in each of the two preceding years must report data on their
closed-end mortgage applications and loans under HMDA.
Using data from various sources, including past HMDA submissions,
Call Reports, Credit Union Call Reports, Summary of Deposits, and the
National Information Center, the Bureau applied all current HMDA
reporting requirements, including Regulation C's existing complete
regulatory exclusion for institutions that originated fewer than 25
closed-end mortgage loans in either of the two preceding calendar
years, and estimates that currently there are about 4,860 financial
institutions required to report their closed-end mortgage loans and
applications under HMDA. Together, these financial institutions
originated about 6.3 million closed-end mortgage loans in calendar year
2018. The Bureau observes that the total number of institutions that
were engaged in closed-end mortgage lending in 2018, regardless of
whether they met all HMDA reporting criteria, was about 11,600, and the
total number of closed-end mortgage originations in 2018 was about 7.2
million. In other words, under the current 25 closed-end loan
threshold, about 41.9 percent of all mortgage lenders are required to
report HMDA data, and they account for about 87.8 percent of all
closed-end mortgage originations in the country. The Bureau estimates
that among those 4,860 financial institutions that are currently
required to report closed-end mortgage loans under HMDA, about 3,250
insured depository institutions and insured credit unions are partially
exempt for closed-end mortgage loans under the EGRRCPA, and thus are
not required to report a subset of the data points currently required
by Regulation C for these transactions.
The Bureau stated in the May 2019 Proposal that it intended to
review the 2018 HMDA data more closely in connection with this
rulemaking once the 2018 submissions were more complete. The Bureau
released the national loan level dataset for 2018 and the Bureau's
annual overview of residential mortgage lending based on HMDA data
\170\ (collectively the 2018 HMDA Data) in August 2019, and reopened
the comment period on aspects of the May 2019 Proposal until October
15, 2019, to give commenters an opportunity to comment on the 2018 HMDA
Data. The estimates reflected in this final rule are based on the HMDA
data collected in 2017 and 2018 as well as other sources. The Bureau
notes that the estimates provided above update the initial estimates
provided in the May 2019 Proposal with the 2018 HMDA data.\171\ In
particular, as the 2018 HMDA data analyses were not available at the
time when the Bureau developed the May 2019 Proposal, the Bureau used
HMDA data from 2016 and 2017 with a two-year look-back period in
calendar years 2016 and 2017 for its estimates of potential reporters
and projected the lending activities of financial institutions using
their 2017 activities as proxies. In generating the updated estimates
for this final rule, the Bureau has used HMDA data from 2017 and 2018
with a two-year look-back period in calendar years 2017 and 2018 for
its estimates of potential reporters and projected the lending
activities of financial institutions using their 2018 activities as
proxies. In addition, for the estimates provided in the May 2019
Proposal and in this final rule, the Bureau restricted the projected
reporters to only those that actually reported data in the most
recently available year of HMDA data (2017 for the May 2019 proposal
and 2018 for this final rule).\172\
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\170\ The Bureau's overview is available in two articles. Bureau
of Consumer Fin. Prot., ``Data Point: 2018 Mortgage Market Activity
and Trends: A First Look at the 2018 HMDA Data'' (Aug. 2019),
https://www.consumerfinance.gov/data-research/research-reports/data-point-2018-mortgage-market-activity-and-trends/; Bureau of Consumer
Fin. Prot., ``Introducing New and Revised Data Points in HMDA:
Initial Observations from New and Revised Data Points in 2018 HMDA''
(Aug. 2019), https://www.consumerfinance.gov/data-research/research-reports/introducing-new-revised-data-points- hmda/.
\171\ In the May 2019 Proposal, the Bureau estimated that there
were about 4,960 financial institutions required to report their
closed-end mortgage loans and applications under HMDA. Together,
these financial institutions originated about 7.0 million closed-end
mortgage loans in calendar year 2017. The Bureau observed that the
total number of financial institutions that were engaged in closed-
mortgage lending in 2017, regardless of whether they met all HMDA
reporting criteria, was about 12,700, and the total number of
closed-end mortgage originations in 2017 was about 8.2 million. The
Bureau estimated then that under the current threshold of 25 closed-
end mortgage loans, about 39 percent of all mortgage lenders were
required to report HMDA data, and they accounted for about 85.6
percent of all closed-end mortgage originations in the country;
among those 4,960 financial institutions that were required to
report closed-end mortgage loans under HMDA, about 3,300 insured
depository institutions and insured credit unions were partially
exempt for closed-end mortgage loans under the EGRRCPA and the 2018
HMDA Rule.
\172\ The Bureau recognizes that the estimates generated using
this restriction may omit certain financial institutions that should
have reported but did not report in the most recent HMDA reporting
year. However, the Bureau applied this restriction to ensure that
institutions included in its estimates are in fact financial
institutions for purposes of Regulation C because it recognizes that
institutions might not meet the Regulation C definition of financial
institution for reasons that are not evident in the data sources
that it reviewed.
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The Bureau estimates that when the closed-end threshold increases
to 100 under this final rule, the total number of financial
institutions required to report closed-end mortgage loans will drop to
about 3,160, a decrease of about 1,700 financial institutions compared
to the current level. These 1,700 newly excluded institutions
originated about 112,000 closed-end mortgage loans in 2018. The Bureau
estimates that there will be about 6.2 million closed-end mortgage loan
originations reported under the threshold of 100 closed-end mortgage
loans, which will account for about 86.3 percent of all closed-end
mortgage loan originations in the entire mortgage market. The Bureau
further estimates that about 1,630 of the 1,700 newly excluded closed-
end reporters that will be excluded under the threshold of 100 closed-
end mortgage loans are eligible for a partial exemption for closed-end
mortgage loans under the EGRRCPA.
The Bureau notes that the estimates presented above update the
corresponding estimates from the May 2019 Proposal \173\ for the
reasons
[[Page 28394]]
explained above, reflecting more recent data. The updated estimates
overall are consistent with the Bureau's analysis in the May 2019
Proposal and continue to support the Bureau's view regarding the
impacts of a threshold of 100 closed-end mortgage loans.
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\173\ In the May 2019 Proposal, the Bureau estimated that if the
closed-end threshold were increased to 100, the total number of
financial institutions that would be required to report closed-end
mortgage loans would drop to about 3,240, a decrease of about 1,720
financial institutions compared to the current level. These 1,720
newly excluded institutions originated about 147,000 closed-end
mortgage loans in 2017. There would be about 6.87 million closed-end
mortgage loan originations reported under the threshold of 100
closed-end mortgage loans, which would account for about 83.7
percent of all closed-end mortgage originations in the entire
mortgage market.
The Bureau further estimated that all but about 50 of the 1,720
newly excluded closed-end mortgage loan reporters that would be
excluded under the proposed threshold of 100 closed-end mortgage
loans would be eligible for a partial exemption for closed-end
mortgage loans as provided by the EGRRCPA and the 2018 HMDA Rule.
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Table 3 below shows the Bureau's estimates of the number of closed-
end reporters that would be required to report under various potential
thresholds, and the number of closed-end originations reported by these
financial institutions, both in total and broken down by whether they
are depository institutions or non-depository institutions, and among
depository institutions whether they are partially exempt under the
EGRRCPA.\174\
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\174\ In the May 2019 Proposal, the Bureau provided a similar
table that included a breakdown of reporters by agency. For the
final rule, as more relevant here, the Bureau has instead used this
table to summarize the Bureau's estimates broken down by whether the
reporters are depository institutions or non-depository institutions
and, among depository institutions, whether they are partially
exempt under the EGRRCPA.
Table 3--Estimated Number of Closed-End Reporters and Closed-End Mortgage Loans Reported Under Various
Thresholds
----------------------------------------------------------------------------------------------------------------
Depository institution
Non-depository --------------------------------
Threshold institution Not partially Partially Total
exempt exempt
----------------------------------------------------------------------------------------------------------------
25:
# of Reporters............................ 740 870 3,250 4,860
# of Reported Loans (in thousands)........ 3,429 2,419 475 6,323
50
# of Reporters............................ 720 870 2,530 4,120
# of Reported Loans (in thousands)........ 3,428 2,419 443 6,290
100
# of Reporters............................ 680 860 1,620 3,160
# of Reported Loans (in thousands)........ 3,425 2,417 369 6,211
----------------------------------------------------------------------------------------------------------------
Benefits to Covered Persons
The final rule's complete exclusion from closed-end mortgage
reporting for institutions that originated fewer than 100 closed-end
mortgage loans in either of the two preceding calendar years conveys a
direct benefit to the excluded covered persons by reducing the ongoing
costs of having to report closed-end mortgage loans and applications
that were previously required.
In the impact analysis of the 2015 HMDA Rule, prior to the adoption
of the changes in the 2015 HMDA Rule and implementation of the Bureau's
operational improvements, the Bureau estimated that the annual
operational costs for financial institutions of reporting under HMDA
were approximately $2,500 for a representative low-complexity tier 3
financial institution with a loan/application register size of 50
records; $35,600 for a representative moderate-complexity tier 2
financial institution with a loan/application register size of 1,000
records; and $313,000 for a representative high-complexity tier 1
financial institution with a loan/application register size of 50,000
records. The Bureau estimated that accounting for the operational
improvements, the net impact of the 2015 HMDA Rule on ongoing
operational costs for closed-end reporters would be approximately
$1,900, $7,800, and $20,000 \175\ per year, for representative low-,
moderate-, and high-complexity financial institutions, respectively.
This means that with all components of the 2015 HMDA Rule implemented
and accounting for the Bureau's operational improvements, the estimated
annual operational costs for closed-end mortgage reporting would be
approximately $4,400 for a representative low-complexity tier 3
reporter, $43,400 for a representative moderate-complexity tier 2
reporter, and $333,000 for a representative high-complexity tier 1
reporter.
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\175\ This does not include the costs of quarterly reporting for
financial institutions that have annual origination volume greater
than 60,000. Those quarterly reporters are all high-complexity tier
1 institutions, and the Bureau estimates none of the quarterly
reporters will be excluded under this final rule.
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For purposes of this final rule, updating the above numbers to
account for inflation, the Bureau estimates that if a financial
institution is required to report under the 2015 HMDA Rule and is not
partially exempt under the EGRRCPA, the savings on the annual
operational costs from not reporting any closed-end mortgage data under
the final rule is as follows: approximately $4,500 for a representative
low-complexity tier 3 institution, $44,700 for a representative
moderate-complexity tier 2 institution, and $343,000 for a
representative high-complexity tier 1 institution. On the other hand,
the Bureau estimates that if a financial institution is eligible for a
partial exemption on its closed-end mortgage loans under the EGRRCPA,
the annual savings in the ongoing costs from the partial exemption
alone would be approximately $2,300 for a representative low-complexity
tier 3 institution, $11,900 for a representative moderate-complexity
tier 2 institution and $33,900 for a representative high-complexity
tier 1 institution. Therefore, the Bureau estimates that if a financial
institution is required to report under the 2015 HMDA Rule, but is
partially exempt under the EGRRCPA, the savings in the annual
operational costs from not reporting any closed-end mortgage data would
be as follows: approximately $2,200 for a representative low-complexity
tier 3 institution, $32,800 for a representative moderate-complexity
tier 2 institution, and $309,000 for a representative high-complexity
tier 1 institution. These estimates have already been adjusted for
inflation.
In part VI of the May 2019 Proposal, the Bureau specifically
requested information relating to the costs financial institutions
incurred in collecting and reporting 2018 data in compliance with the
2015 HMDA Rule. The Bureau stated this information might be valuable in
estimating costs in
[[Page 28395]]
the Dodd-Frank Act section 1022(b) analysis issued with the final rule.
The Bureau received a number of comments regarding the costs of
collecting and reporting data in compliance with the 2015 HMDA Rule.
Among the comments that provided specific cost estimates of compliance,
most are related to closed-end reporting. The degree of details of such
comments vary. Some provided the estimates of HMDA operational costs in
dollar terms, some provided estimates of hours employees spent on each
loan/application register record on average, some provided the cost of
purchasing software, some provided consulting and auditing costs, and
some provided the number of loan/application register records they
processed while others did not.
The Bureau has reviewed these cost estimates provided in comments
and compared them with the Bureau's estimates of HMDA operational costs
using the three representative tier approach. Most of these commenters
had low loan/application register volume similar to the representative
tier 3 financial institutions. For example, one small financial
institution commented that it was spending approximately $12,000 in
employee expenses alone to generate its loan/application register or
approximately $68 to $100 per loan/application register record. Based
on the information provided by this commenter, the Bureau estimates the
annual loan/application register size for this commenter is between 175
and 200 records, which is close to the Bureau's assumption for a
representative low-complexity tier 3 financial institution in the
estimates provided in the 2015 HMDA Rule. Specifically, the Bureau
estimated that for a representative low-complexity tier 3 financial
institution with 50 HMDA loan/application register records, the total
ongoing costs with operational improvements the Bureau has implemented
since issuing the 2015 HMDA Rule would be about $4,400, or about $88
per loan/application register record. Overall, the cost and hourly
estimates provided by the commenters vary. Figure 1 plots the average
costs per loan/application register record (on the vertical axis)
against the number of loan/application register records (on vertical
axis) for the low-complexity tier 3 financial institutions that
provided cost estimates in their comments and that the Bureau was able
to match to their 2018 HMDA loan/application register records. Other
than a few outliers, they are all within the reasonable range that the
Bureau anticipated and close to (though not exactly equal to) the
Bureau's cost estimates for representative low-complexity tier 3
institutions. The Bureau notes that variation of operational costs
among different financial institutions is not surprising. As the Bureau
recognized in the 2015 HMDA Rule and the May 2019 Proposal, costs vary
by institution due to many factors, such as size, operational
structure, and product complexity, and that is the reason the Bureau
adopted a tiered framework to capture the relationships between
operational complexity and compliance cost. The three-tiered framework
uses representative institutions to capture this type of variability
and estimate overall costs of HMDA reporting.
[GRAPHIC] [TIFF OMITTED] TR12MY20.177
[[Page 28396]]
The Bureau has considered the comments it received on compliance
costs and concludes that they do not undermine the Bureau's approach or
cost parameters used in part VI of the May 2019 Proposal. The Bureau
therefore does not believe that the comments received provide a basis
for departing from the approach for analyzing costs for covered persons
used in part VI of the May 2019 Proposal.
Using the methodology discussed above in part VI.D.1, the Bureau
estimates that with the threshold of 100 closed-end mortgage loans
under the final rule, about 1,700 institutions will be completely
excluded from reporting closed-end mortgage data compared to the
current level. About 1,630 of the 1,700 are eligible for the partial
exemption for closed-end mortgage loans under the EGRRCPA.
Approximately 1,640 of these newly-excluded institutions are depository
institutions, and approximately 60 are nondepository institutions.
The Bureau estimates that, of the approximately 1,630 institutions
that are (1) required to report closed-end mortgage loans under the
2015 HMDA Rule, (2) partially exempt under the EGRRCPA, and (3)
completely excluded under the threshold of 100 closed-end mortgage
loans, about 1,560 are similar to the representative low-complexity
tier 3 institution and about 70 are similar to the representative
moderate-complexity tier 2 institution. Of the approximately 70
remaining institutions that are required to report closed-end mortgage
data under the 2015 HMDA Rule and are not partially exempt under the
EGRRCPA but will be completely excluded under the threshold of 100
closed-end mortgage loans, about 60 are similar to the representative
low-complexity tier 3 institution and about 10 are similar to the
representative moderate-complexity tier 2 institution.\176\
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\176\ The Bureau estimated in the May 2019 Proposal that
approximately 1,720 institutions would be newly excluded from the
closed-end reporting under the proposed 100 loan threshold, of which
about 1,670 are already partially exempt under EGRRCPA, and among
those 1,670 financial institutions, about 1,540 are low-complexity
tier 3 institutions and 130 are moderate-complexity tier 2
institutions. The Bureau also estimated in the May 2019 Proposal
that of the approximately 50 remaining institutions that are
required to report closed-end mortgage data under the 2015 HMDA Rule
and are not partially exempt under the EGRRCPA but would be
completely excluded under the threshold of 100 closed-end mortgage
loans, about 45 are similar to the representative low-complexity
tier 3 institution and about 5 are similar to the representative
moderate-complexity tier 2 institution. These estimates are updated
in the final rule and presented here.
---------------------------------------------------------------------------
Based on the estimates of the savings of annual ongoing costs for
closed-end reporting per representative institution, grouped by whether
or not it is partially exempt under the EGRRCPA, and the estimated tier
distribution of these financial institutions that will be excluded
under the 100 closed-end loan threshold, the Bureau estimates that the
total savings in the annual ongoing costs from HMDA reporting by
excluded firms that are already partially exempt for closed-end
mortgage loans under the EGRRCPA will be about $5.9 million. The Bureau
also estimates that the total savings in the annual ongoing costs from
HMDA reporting by fully excluded firms that are not eligible for a
partial exemption under the EGRRCPA will be about $0.5 million.
Together the annual savings in the operational costs of firms newly
excluded under the threshold of 100 closed-end loans will be about $6.4
million.\177\
---------------------------------------------------------------------------
\177\ The Bureau estimated in the May 2019 Proposal that the
total savings in the annual ongoing costs from HMDA reporting by
excluded firms that are already partially exempt for closed-end
mortgage loans under the EGRRCPA would be about $7.7 million. The
Bureau also estimated that the total savings in the annual ongoing
costs from HMDA reporting by fully excluded firms that are not
eligible for a partial exemption under the EGRRCPA would be about
$0.4 million. The Bureau estimated that together the annual savings
in the operational costs of firms newly excluded under the threshold
of 100 closed-end loans would be about $6.4 million. These estimates
are updated in the final rule and presented here.
---------------------------------------------------------------------------
Alternative Considered: 50 Closed-End Threshold
The threshold of 100 closed-end mortgage loans adopted in this
final rule is one of the two alternative closed-end thresholds that the
Bureau proposed in the May 2019 Proposal. The other alternative
threshold proposed in the May 2019 Proposal was 50.
The Bureau estimates that if the closed-end threshold were
increased to 50, the total number of financial institutions that would
be required to report closed-end mortgage loans would drop to about
4,120, a decrease of about 740 financial institutions compared to the
current level at 25. The 740 institutions that would be excluded
originated about 33,000 closed-end mortgage loans in 2018. There would
be about 6.29 million closed-end mortgage originations reported under
the alternative threshold of 50 closed-end mortgage loans that the
Bureau considered, which would account for about 87.4 percent of all
closed-end mortgage loan originations in the entire mortgage market.
The Bureau further estimates that about 720 of the 740 closed-end
mortgage reporters that would be excluded under the alternative
threshold of 50 closed-end mortgage loans would be eligible for a
partial exemption for closed-end mortgage loans under the EGRRCPA.
The Bureau estimates that, of the approximately 720 financial
institutions that are (1) required to report closed-end mortgage loans
under the 2015 HMDA Rule, (2) partially exempt under the EGRRCPA, and
(3) completely excluded under the alternative threshold of 50 closed-
end mortgage loans, about 710 are similar to the representative low-
complexity tier 3 institution and about 10 are similar to the
representative moderate-complexity tier 2 institution. Of the
approximately 20 remaining financial institutions that are required to
report closed-end mortgage loans under the 2015 HMDA Rule and are not
partially exempt under the EGRRCPA but would be completely excluded
under the alternative threshold of 50 closed-end mortgage loans, all
are similar to the representative low-complexity tier 3 institution.
As described above, the Bureau first estimates the savings of
annual ongoing costs for closed-end reporting per representative
institution, grouped by whether or not it is partially exempt for
closed-end reporting under the EGRRCPA, and the tier distribution of
these institutions that would be excluded under the alternative
threshold of 50 closed-end mortgage loans. Using that information, the
Bureau then estimates that, under the alternative threshold of 50
closed-end mortgage loans, the total savings in annual ongoing costs
from HMDA reporting by fully excluded institutions that are already
partially exempt under the EGRRCPA would be about $1.9 million, and the
total savings in the annual ongoing costs from HMDA reporting by fully
excluded firms that are not eligible for a partial exemption under the
EGRRCPA would be about $0.1 million. Together the annual savings in the
operational costs of firms excluded under the alternative threshold of
50 closed-end mortgage loans would be about $2.0 million.
The Bureau notes the estimates provided above for the alternative
threshold of 50 update the estimates for the proposed threshold of 50
in the May 2019 Proposal for the reasons explained above.\178\
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\178\ In the May 2019 Proposal, the Bureau estimated that with
the proposed threshold of 50 closed-end mortgage loans, about 760
institutions would be completely excluded from reporting closed-end
mortgage data compared to the current level. All but about 20 of
these 760 institutions would be eligible for a partial exemption
under the EGRRCPA and the 2018 HMDA Rule. The Bureau estimated then
that, of the approximately 740 financial institutions that are (1)
required to report closed-end mortgages under the 2015 HMDA Rule,
(2) partially exempt under the EGRRCPA, and (3) completely excluded
under the proposed 50 loan threshold, about 727 were similar to the
representative low-complexity tier 3 institution and about 13 were
similar to the representative moderate-complexity tier 2
institution. Of the approximately 20 remaining financial
institutions that are required to report closed-end mortgages under
the 2015 HMDA Rule and are not partially exempt under the EGRRCPA
but would be completely excluded under the proposed threshold of 50
closed-end mortgage loans, about 19 were similar to the
representative low-complexity tier 3 institution and only one was
similar to the representative moderate-complexity tier 2
institution. The Bureau estimated that the total savings in annual
ongoing costs from HMDA reporting by fully excluded institutions
that are already partially exempt under the EGRRCPA would be about
$2 million, and the total savings in the annual ongoing costs from
HMDA reporting by fully excluded firms that previously were not
eligible for a partial exemption under the EGRRCPA would be about
$140,000. Together the annual savings in the operational costs of
firms excluded under the proposed threshold of 50 closed-end
mortgage loans would be about $2.2 million.
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[[Page 28397]]
The Bureau further notes that, because the Bureau is finalizing the
closed-end threshold at 100 instead of 50, the covered persons will
realize additional annual savings in their operational costs of about
$4.4 million.
Costs to Covered Persons
It is possible that, like any new regulation or revision to an
existing regulation, financial institutions will incur certain one-time
costs adapting to the changes to the regulation. Based on the Bureau's
outreach to stakeholders, the Bureau understands that most of these
one-time costs consists of interpreting and implementing the regulatory
changes and not from purchasing software upgrades or turning off the
existing reporting functionality that the newly excluded institutions
already built or purchased prior to the new changes taking effect.
The Bureau sought comments on any costs to institutions that would
be newly excluded under either of the alternative proposed increases to
the closed-end threshold. No commenter expressed concern that the costs
for newly excluded reporters would be substantial.
Benefits to Consumers
Having generated estimates of the reduction in ongoing costs on
covered financial institutions due to the increase in the closed-end
loan threshold, the Bureau then attempts to estimate the potential
pass-through of such cost reduction from these institutions to
consumers, which could benefit consumers and affect credit access.
According to economic theory, in a perfectly competitive market where
financial institutions are profit maximizers, the affected financial
institutions would pass on to consumers the marginal, i.e., variable,
cost savings per application or origination, and absorb the one-time
and increased fixed costs of complying with the rule.
The Bureau estimated in the 2015 HMDA Rule that the final rule
would increase variable costs by $23 per closed-end mortgage
application for representative low-complexity tier 3 institutions and
$0.20 per closed-end mortgage application for representative moderate-
complexity tier 2 institutions. The Bureau estimated that prior to the
2015 HMDA Rule, the variable costs of HMDA reporting were about $18 per
closed-end mortgage application for representative low-complexity tier
3 institutions and $6 per closed-end mortgage application for
representative moderate-complexity tier 2 institutions. For purposes of
this final rule, adjusting the above numbers for inflation, the Bureau
estimates the savings on the variable cost per closed-end application
for a representative low-complexity tier 3 financial institution that
is not partially exempt under the EGRRCPA but excluded from closed-end
reporting under this final rule will be about $42 per application; the
savings on the variable cost per application for a representative
moderate-complexity tier 2 financial institution that is not partially
exempt under the EGRRCPA but excluded from closed-end reporting under
the final rule will be about $6.40 per application.
The Bureau estimates that the partial exemption for closed-end
mortgage loans under the EGRRCPA for eligible insured depository
institutions and insured credit unions reduces the variable costs of
HMDA reporting by approximately $24 per closed-end mortgage application
for representative low-complexity tier 3 institutions, $0.68 per
closed-end mortgage application for representative moderate-complexity
tier 2 institutions, and $0.05 per closed-end mortgage application for
representative high-complexity tier 1 institutions. The savings on the
variable cost per application for a representative low-complexity tier
3 financial institution that is partially exempt under the EGRRCPA and
also fully excluded from closed-end reporting under the final rule will
be about $18.30 per application. The savings on the variable cost per
application for a representative moderate-complexity tier 2 financial
institution that is partially exempt under the EGRRCPA and fully
excluded from closed-end reporting under the final rule will be about
$5.70 per application. These are the cost reductions that excluded
institutions under the final rule might pass through to consumers,
assuming the market is perfectly competitive. This potential reduction
in the expense consumers face when applying for a mortgage will be
amortized over the life of the loan and may represent a very small
amount relative to the cost of a mortgage loan. As a point of
reference, the median total loan costs for closed-end mortgages was
$6,056 according to the 2018 HMDA Data.\179\ The Bureau notes that the
market structure in the consumer mortgage lending market may differ
from that of a perfectly competitive market (for instance due to
information asymmetry between lenders and borrowers) in which case the
pass-through to the consumers would most likely be smaller than the
pass-through under the perfect competition assumption.\180\
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\179\ See Bureau of Consumer Fin. Prot., ``Introducing New and
Revised Data Points in HMDA: Initial Observations from New and
Revised Data Points in 2018 HMDA'' (Aug. 2019), https://www.consumerfinance.gov/data-research/research-reports/introducing-new-revised-data-points- hmda/.
\180\ The further the market moves away from a perfectly
competitive market, the smaller the pass-through would be.
---------------------------------------------------------------------------
Costs to Consumers
The increase in the closed-end threshold to 100 loans will relieve
excluded financial institutions from the reporting requirements for all
closed-end mortgage loans and applications. As a result, HMDA data on
these institutions' closed-end mortgage loans and applications will no
longer be available to regulators, public officials, and members of the
public. The decreased data about excluded institutions may lead to
adverse outcomes for some consumers. For instance, HMDA data, if
reported, could help regulators and public officials better understand
the type of funds that are flowing from lenders to consumers and
consumers' needs for mortgage credit. The data may also help improve
the processes used to identify possible discriminatory lending patterns
and enforce antidiscrimination statutes. A State attorney general
commenter expressed concern that the May 2019 Proposal did not fully
account for these costs, including the costs to States in losing access
to helpful data, while a consumer organization commenter stated that
the public would face an increased burden in understanding and
accurately mapping the flow of credit. The Bureau did not, however,
receive any comments that quantify the losses.
The Bureau recognizes that the costs to consumers from increasing
the
[[Page 28398]]
threshold to 100 loans will be higher than it would be if the Bureau
were to increase the threshold to 50 loans. The Bureau currently lacks
sufficient data to quantify these costs other than the estimated
numbers of covered loans and covered institutions under the two
alternative proposed thresholds, as discussed above and reported in
Table 3.
3. Provisions to Increase the Open-End Threshold
Scope of the Provisions
The final rule will permanently set the threshold for reporting
data about open-end lines of credit at 200 open-end lines of credit in
each of the two preceding calendar years starting in 2022.
The 2015 HMDA Rule generally requires financial institutions that
originated at least 100 open-end lines of credit in each of the two
preceding years to report data about their open-end lines of credit and
applications. The 2017 HMDA Rule temporarily increased the open-end
threshold to 500 open-end lines of credit for two years, and the 2019
HMDA Rule extended the temporary threshold for two additional years.
Thus, only financial institutions that originated at least 500 open-end
lines of credit in each of the two preceding years are subject to
HMDA's requirements for their open-end lines of credit for 2018 through
2021. The EGRRCPA generally provides a partial exemption for insured
depository institutions and insured credit unions that originated fewer
than 500 open-end lines of credit in each of the two preceding years
and do not have certain less than satisfactory CRA examination ratings.
However, for 2018 through 2021, all insured depository institutions and
insured credit unions that are eligible for a partial exemption for
open-end lines of credit by the EGRRCPA are also fully excluded from
HMDA's requirements for their open-end lines of credit. Absent this
final rule, starting in 2022 the open-end threshold would have reverted
to 100, and eligible institutions that exceeded the threshold of 100
open-end lines of credit would have been able to use the EGRRCPA's
open-end partial exemption if they originated fewer than 500 open-end
lines of credit in each of the two preceding years. Thus, the
appropriate baseline for the consideration of benefits and costs of the
change to the open-end threshold is a situation in which the open-end
threshold is set at 100 for each of two preceding years for data
collection starting in 2022, with a partial exemption threshold of 500
open-end lines of credit.
The Bureau has used multiple data sources, including credit union
Call Reports, Call Reports for banks and thrifts, HMDA data, and
Consumer Credit Panel data, to develop estimates about open-end
originations for lenders that offer open-end lines of credit and to
assess the impact of various thresholds on the number of reporters and
on market coverage under various scenarios.\181\
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\181\ In general, credit union Call Reports provide the number
of originations of open-end lines of credit secured by real estate
but exclude lines of credit in the first-lien status. Call Reports
for banks and thrifts report only the balance of the home-equity
lines of credit at the end of the reporting period but not the
number of originations in the period.
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In part VI of the May 2019 Proposal, the Bureau estimated that if
the threshold were set at 100 open-end lines of credit, the number of
reporters would be about 1,014, who in total originated about 1.41
million open-end lines of credit, representing about 88.7 percent of
all originations and 15.3 percent of all lenders in the market. In
comparison, if the threshold were set at 200 open-end lines of credit,
the Bureau estimated that the number of reporters would be about 613,
who in total originated about 1.34 million open-end lines of credit. In
terms of market coverage, this would represent about 84.2 percent of
all originations and 9.2 percent of all lenders in the open-end line of
credit market. In other words, if the threshold were increased to 200,
in comparison to the default baseline where the threshold was set at
100 in 2022, the Bureau estimated that the number of institutions
affected would be about 401, who in total originated about 69,000 open-
end lines of credit. Among those 401 institutions, the Bureau estimated
that about 378 already qualify for a partial exemption for their open-
end lines of credit under the EGRRCPA and in total they originate about
61,000 open-end lines of credit.
As the 2018 HMDA data analyses were not available at the time of
the May 2019 Proposal, 2017 was the most recent year of HMDA data the
Bureau used for the analyses in the May 2019 Proposal. For this part of
the final rule, the Bureau has supplemented the analyses with the 2018
HMDA data now available. In the 2018 HMDA data, which used an open-end
reporting threshold of 500, about 957 reporters actually reported any
open-end line of credit transactions. In total, these institutions
reported about 1.15 million open-end originations, which is close to
what the Bureau projected in its estimate of 1.23 million originations
to be reported in the May 2019 Proposal. Even though the number of
open-end reporters in the 2018 HMDA data (957) is greater than the
number the Bureau forecasted would be required to report (333) in the
May 2019 Proposal, only 307 of the institutions that reported open-end
transactions in the 2018 HMDA data actually reported greater than 500
open-end originations, which is close to the Bureau's projection that
there would be 333 required open-end reporters with a reporting
threshold of 500. The Bureau's projection in the May 2019 Proposal for
the temporary threshold of 500 open-end originations was based on the
projected number of open-end reporters whose open-end origination
volumes were greater than 500 in each of the preceding two years (which
is how the HMDA reporting requirements are structured), and not on the
volume from the current HMDA activity year. In addition, that
projection cannot account for the number of reporters who would report
voluntarily even though they are not required to do so. Given these
factors, it is possible that some lenders with open-end line of credit
origination volumes exceeding 500 in both 2016 and 2017 originated
fewer than 500 open-end lines of credit in 2018, but were nevertheless
required to report their 2018 data under the HMDA reporting
requirements. On the other hand, it is also possible that some
reporters opted to report their open-end lending activities in the 2018
HMDA data even though they were not required to report. Regardless,
these 2018 open-end reporters with a reported origination volume of
fewer than 500 open-end lines of credit in 2018 are not required to
collect data on their open-end activity in 2020 after the two-year
temporary extension of the 500 open-end threshold of the 2019 HMDA Rule
took effect, based on the two-year look-back period for the reporting
requirements. Therefore, the Bureau believes that its estimates of the
number of impacted institutions provided in the May 2019 Proposal were
and are reasonable and consistent with the actual number of open-end
reporters in the 2018 HMDA data.
[[Page 28399]]
Moreover, there are two additional considerations that support the
Bureau's continued reliance in this final rule on its estimates on
open-end coverage under various thresholds developed in the May 2019
Proposal. First, the permanent threshold of 200 open-end lines of
credit starting in 2022 adopted in this final rule is lower than the
temporary threshold of 500 open-end lines of credit that was in effect
for the 2018 HMDA data. Hence, most institutions that originated fewer
than 500 open-end lines of credit but at least 200 open-end lines of
credit likely were not captured by the 2018 HMDA data, but they would
have been required to report if the threshold had been set at 200.
Second, the HMDA reporting requirements consider a two-year look-back
period, and only 2018 HMDA data analyses were available as of the time
of this final rule's development. For these reasons, the Bureau
believes that its estimates of open-end coverage under various
thresholds developed for the May 2019 Proposal continue to provide the
most reliable estimates for this final rule.
On the other hand, because the number of open-end applications was
not available in any data sources prior to the 2018 HMDA data, in past
HMDA rulemakings related to open-end reporting, the Bureau relied on
the projected number of originations as a proxy for the number of loan/
application register records for the analyses. With the 2018 HMDA data
reported, the Bureau now can evaluate the impact of the final rule
using the projected loan/application register records instead of
projected originations for the first time. Because most of the data
points under HMDA are required for all loan/application register
records, not just originated loans, the Bureau has updated the
estimates of cost and cost savings for open-end lines of credit based
on the number of loan/application register records instead of
originations. The Bureau's coverage estimates, however, continue to be
based on originations because the thresholds are based on origination
volume, and thus, as noted immediately above, the estimates previously
provided continue to be reasonable. The analyses below have been
supplemented to reflect the new 2018 HMDA data that includes
applications, originations, and purchased loans. Table 4 below shows
the estimated number of reporters of open-end lines of credit, their
estimated origination volume, and the market share under thresholds of
100, 200 and 500 open-end lines of credit.\182\ The Bureau notes that
the threshold of 100 open-end lines of credit is the baseline of the
analyses adopted for purposes of this final rule, the threshold of 200
open-end lines of credit is the threshold adopted under the final rule,
and the threshold of 500 open-end lines of credit is the temporary
threshold in place for 2020 and 2021 under the 2019 HMDA Rule.
---------------------------------------------------------------------------
\182\ In the May 2019 Proposal, the Bureau provided a similar
table that included a breakdown of open-end reporters by agency. For
the final rule, as more relevant here, the Bureau has instead
included the breakdown by depository institution versus non-
depository institution.
Table 4--Estimated Number of Open-End Reporters and Open-End Lines of
Credit Reported under Various Thresholds
------------------------------------------------------------------------
Reporting Threshold
Open-end Lines of Credit Universe --------------------------
100 200 500
------------------------------------------------------------------------
# of Loans (in 1000's):
All....................... 1,590 1,410 1,341 1,233
Market Coverage................... ......... 88.7% 84.4% 77.6%
Type:
Banks & Thrifts........... 880 814 787 753
Credit Unions............. 653 545 506 437
Non-DIs................... 57 51 48 44
# of Institutions:
All....................... 6,615 1,014 613 333
Type:
Banks & Thrifts........... 3,819 391 212 113
Credit Unions............. 2,578 581 376 205
Non-DIs................... 218 42 25 15
------------------------------------------------------------------------
Benefits to Covered Persons
The increase in the permanent threshold from 100 to 200 open-end
lines of credit in each of the two preceding calendar years starting in
2022, conveys a direct benefit to covered persons that originated fewer
than 200 open-end lines of credit in either of the two preceding years
but originated at least 100 open-end lines of credit in each of the two
preceding years in reducing the ongoing costs of having to report their
open-end lines of credit. The Bureau estimates that increasing the
permanent threshold to 200 open-end lines of credit will relieve
approximately 384 depository institutions and approximately 17 non-
depository institutions from reporting open-end lines of credit as
compared to having the threshold decrease to 100.
The Bureau estimates that, with the threshold increased to 200 as
compared to decreasing to 100 starting in 2022, about 401 financial
institutions will be excluded from reporting open-end lines of credit
starting in 2022. About 378 of those 401 financial institutions are
eligible for the partial exemption for open-end lines of credit under
the EGRRCPA, and about 23 of them are not eligible for the partial
exemption for open-end lines of credit because in one of the preceding
two years their open-end origination volume exceeded 500. Of the 378
institutions that are already partially exempt under the EGRRCPA but
will be fully excluded from open-end reporting starting in 2022 under
this final rule, the Bureau estimates that about 301 are low-complexity
tier 3 open-end reporters, about 77 are moderate-complexity tier 2
open-end reporters, and none are high-complexity tier 1 reporters. In
addition, of the 23 institutions that are not eligible for the partial
exemption under the EGRRCPA but will be fully excluded from open-
[[Page 28400]]
end reporting starting in 2022 under this final rule, the Bureau
estimates that about 8 are low-complexity tier 3 open-end reporters,
about 15 are moderate-complexity tier 2 open-end reporters, and none
are high-complexity tier 1 reporters.\183\ Using the estimates of
savings on ongoing costs for open-end lines of credit for
representative financial institutions, grouped by whether the lender is
already eligible for the partial exemption under the EGRRCPA, as
described above, the Bureau estimates that by increasing the threshold
to 200 open-end lines of credit starting in 2022, the excluded
financial institutions that are already partially exempt under the
EGRRCPA will receive an aggregate reduction in operational cost
associated with open-end lines of credit of about $3.0 million per year
starting in 2022, while the excluded financial institutions that are
not already partially exempt under the EGRRCPA will receive an
aggregate reduction in operational cost associated with open-end lines
of credit of about $0.7 million per year starting in 2022. In total,
increasing the threshold from 100 to 200 open-end lines of credit will
result in savings in the operational costs associated with open-end
lines of credit of about $3.7 million per year starting in 2022.\184\
The increase in the threshold to 200 open-end lines of credit starting
in calendar year 2022, as compared to having the threshold revert to
100, also conveys a direct benefit to covered persons that originated
fewer than 200 open-end lines of credit in either of the two preceding
years but originated at least 100 open-end lines of credit in each of
the two preceding years in removing the one-time costs of having to
report their open-end lines of credit, had the reporting threshold
decreased to 100 according to the 2017 HMDA Rule.
---------------------------------------------------------------------------
\183\ The Bureau notes that more reporters are estimated to be
in tier 2 in this updated analysis in the final rule than the number
of reporters that the Bureau estimated to be in tier 2 in the May
2019 Proposal. This is mainly due to the fact that the Bureau now is
able to supplement new information from the 2018 HMDA data, which
allows the Bureau to conduct the estimates based on the number of
open-end loan/application register records rather than the number of
originations. Each institution is estimated to have more loan/
application register records than in the May 2019 Proposal, because
the Bureau is considering applications as well as originations, thus
more institutions that were previously assigned to the tier 3
category are shifted into the tier 2 category.
\184\ In the May 2019 Proposal, the Bureau estimated that the
annual savings on operational costs would be about $1.8 million if
the open-end threshold were increased from 100 to 200 in 2022. The
higher estimate presented above for the final rule is mainly due to
the fact that the Bureau now is able to supplement new information
from the 2018 HMDA data, which allows the Bureau to conduct the
estimates based on the number of open-end loan/application register
records rather than the number of originations, resulting in more
affected moderate-complexity tier 2 institutions and higher
operational cost savings. Although the estimated total cost
reduction is higher than it was in the proposal based on the
additional 2018 HMDA data, the overall analysis is consistent with
the Bureau's methodology and conclusions from the May 2019 Proposal.
---------------------------------------------------------------------------
It is the Bureau's understanding that most of the financial
institutions that were temporarily excluded for 2018 through 2021 under
the temporary threshold of 500 open-end lines of credit established in
the 2017 HMDA Rule and 2019 HMDA Rule have not fully prepared for open-
end reporting because they have been waiting for the Bureau to decide
on the permanent open-end reporting threshold that will apply after the
temporary threshold expires in 2022. Under the baseline in this impact
analysis, absent this final rule, some of those financial institutions
would have to start reporting their open-end lines of credit starting
in 2022, and hence incur one-time costs to create processes and systems
for open-end lines of credit. If the proposal to increase the open-end
threshold to 200 starting in 2022 were not finalized, financial
institutions that originated fewer than 200 open-end lines of credit in
either of the two preceding years but originated at least 100 open-end
lines of credit in each of the two preceding years would eventually
have incurred one-time costs of having to report their open-end lines
of credit, once the reporting threshold reverted to the permanent
threshold of 100.
As noted in the 2015 HMDA Rule, the Bureau recognizes that many
financial institutions, especially larger and more complex
institutions, process applications for open-end lines of credit in
their consumer lending departments using procedures, policies, and data
systems separate from those used for closed-end loans. In the 2015 HMDA
Rule, the Bureau assumed that the one-time costs for reporting
information on open-end lines of credit required under the 2015 HMDA
Rule would be roughly equal to 50 percent of the one-time costs of
reporting information on closed-end mortgages. This translates to one-
time costs of about $400,000 and $125,000 for open-end reporting for
representative high- and moderate-complexity financial institutions,
respectively, that will be required to report open-end lines of credit
while also reporting closed-end mortgage loans. This assumption
accounted for the fact that reporting open-end lines of credit will
require some new systems, extra start-up training, and new compliance
procedures and manuals, while recognizing that some fixed, one-time
costs would need to be incurred anyway in making systemic changes to
bring institutions into compliance with Regulation C and could be
shared with closed-end lines of business. The assumption was consistent
with the Bureau's estimate that an overwhelming majority of open-end
reporters would also be reporting simultaneously closed-end mortgage
loans and applications. In the 2015 HMDA Rule, the Bureau also assumed
that the additional one-time costs of open-end reporting would be
relatively low for low-complexity tier 3 financial institutions because
they are less reliant on information technology systems for HMDA
reporting and may process open-end lines of credit on the same system
and in the same business unit as closed-end mortgage loans. Therefore,
for low-complexity tier 3 financial institutions, the Bureau had
assumed that the additional one-time cost created by open-end reporting
is minimal and is derived mostly from new training and procedures
adopted for the overall changes in the 2015 HMDA Rule.
In the proposal leading to the 2015 HMDA Rule, the Bureau asked for
public comments and specific data regarding the one-time cost of
reporting open-end lines of credit. Although some commenters on that
proposal provided generic feedback on the additional burden of
reporting data on these products, very few provided specific estimates
of the potential one-time costs of reporting open-end lines of credit.
After issuing the 2015 HMDA Rule, the Bureau heard anecdotal reports
that one-time costs to begin reporting information on open-end lines of
credit could be higher than the Bureau's estimates in the 2015 HMDA
Rule. In the May 2019 Proposal, the Bureau indicated that it had
reviewed the 2015 estimates and believed that the one-time cost
estimates for open-end lines of credit provided in 2015, if applied to
the proposed rule, would most likely be underestimates, for two
reasons.
First, in developing the one-time cost estimates for open-end lines
of credit in the 2015 HMDA Rule, the Bureau had envisioned that there
would be cost sharing between the line of business that conducts open-
end lending and the line of business that conducts closed-end lending
at the corporate level, as the implementation of open-end reporting
that became mandatory under the 2015 HMDA Rule would coincide with the
implementation of the changes to closed-end reporting under the 2015
HMDA Rule. For instance, the resources of the corporate compliance
department and information technology department could be shared and
utilized simultaneously across different lines of
[[Page 28401]]
business within the same lender in its efforts to set up processes and
systems adapting to the 2015 HMDA Rule. Therefore, the Bureau assumed
the one-time cost due to open-end reporting would be about one-half of
the one-time costs due to closed-end reporting, in order to both
reasonably count for the costs for reporting open-end lines of credit
and avoid double counting. However, as the Bureau noted in the May 2019
Proposal, circumstances have somewhat changed since the 2015 HMDA Rule.
The 2017 HMDA Rule temporarily increased the open-end lines of credit
threshold from 100 to 500 for two years (2018 and 2019). The 2019 HMDA
Rule further extended the temporary threshold of 500 open-end lines of
credit for two additional years (2020 and 2021). Thus, there will be a
considerable lag between the implementation of closed-end reporting
changes under the 2015 HMDA Rule and the implementation of mandatory
open-end reporting for those open-end lenders that have been
temporarily excluded under the 2017 HMDA Rule and the 2019 HMDA Rule,
but will be required to comply with HMDA's requirements for their open-
end lines of credit starting in 2022 with the 200 origination threshold
taking effect. As a result, the efficiency gain from one-time cost
sharing between the closed-end and open-end reporting that was
envisioned in the cost-benefit analysis of the 2015 HMDA Rule likely
will not be applicable, if some of the temporarily excluded open-end
reporters under the 2017 HMDA Rule and the 2019 HMDA Rule were to start
preparing for open-end reporting several years after the implementation
of closed-end changes.
Therefore, the Bureau now believes the one-time costs of starting
to report information on open-end lines of credit, if the financial
institution is to start reporting open-end lines of credit in 2022 and
beyond, will be higher than the Bureau's initial estimates of one-time
costs of open-end reporting provided in the 2015 HMDA Rule. Thus, for
this impact analysis, the Bureau assumes for a representative moderate-
complexity tier 2 open-end reporter that the one-time costs of starting
open-end reporting in 2022 will be approximately equal to the one-time
cost estimate for closed-end reporting that the Bureau estimated in the
2015 HMDA Rule, instead of being about one half of the one-time cost
estimate for closed-end reporting. This translates to about $250,000
per representative moderate-complexity tier 2 open-end reporter,
instead of $125,000 as the Bureau estimated in the 2015 HMDA Rule
regarding the one-time costs of open-end reporting. This is the case
regardless of whether the open-end reporters also report closed-end
mortgage loans under HMDA. The Bureau notes that the moderate-
complexity tier 2 financial institutions that will be permanently
excluded from open-end reporting under this final rule will no longer
have to incur such one-time costs.
Second, the temporary threshold that the 2017 HMDA Rule and 2019
HMDA Rule established delayed open-end reporting for those low-
complexity tier 3 financial institutions that originated between 100
and 499 open-end lines of credit in either of the two preceding years.
This delay means that those institutions would have had to incur the
one-time costs to restart the training process for staff directly
responsible for open-end data collection and reporting and update
compliance procedures and manuals if the open-end threshold had
reverted to 100 starting in 2022. In the 2015 HMDA Rule, the Bureau
estimated the total one-time cost estimate for low-complexity tier 3
financial institutions would be approximately $3,000 regardless of
whether the financial institution reports open-end lines of credit.
Under this final rule, the Bureau thus assumes that the low-complexity
tier 3 financial institutions that will be completely excluded from
open-end reporting will be able to avoid incurring a one-time cost of
about $3,000.
The Bureau estimates that, with the permanent threshold increased
to 200 starting in 2022 as compared to reverting to 100, about 401 more
institutions will be excluded from reporting open-end lines of credit
starting in 2022. About 309 of those 401 institutions are low-
complexity tier 3 open-end reporters, about 92 are moderate-complexity
tier 2 open-end reporters, and none are high-complexity tier 1
reporters. Using the estimates of savings on one-time costs for open-
end lines of credit for representative financial institutions discussed
above, the Bureau estimates that with the increase in the threshold to
200 open-end lines of credit starting in 2022, the excluded
institutions will receive an aggregate savings in avoided one-time cost
associated with open-end lines of credit of about $23.9 million. This
is an upward revision from the estimated savings of about $3.7 million
in avoided one-time costs in the May 2019 Proposal, mainly because the
Bureau has supplemented its analysis with new information from the 2018
HMDA data. As discussed above, these data allow the Bureau to develop
estimates based on the total number of open-end loan/application
register records rather than the number of open-end originations, and
as a result the Bureau has shifted more affected institutions from tier
3 to tier 2. The overall analysis, however, is consistent with the
Bureau's methodology and conclusions from the May 2019 Proposal.
Costs to Covered Persons
Like any new regulation or revision to the existing regulations,
financial institutions may incur certain one-time costs adapting to the
changes to the regulation. Based on the Bureau's outreach to
stakeholders, the Bureau understands that most of such one-time costs
would result from interpreting and implementing the regulatory changes,
not from purchasing software upgrades or turning off the existing
reporting functionality that the excluded institutions already built or
purchased prior to the new changes taking its effect.
The Bureau sought comment on the costs and benefits to institutions
that the rule would exclude pursuant to the proposed increases to the
open-end threshold. No commenter expressed concern that the costs for
newly excluded reporters would be substantial.
Benefits to Consumers
Having generated estimates of the reduction in ongoing costs on
covered financial institutions due to the increase in the open-end
threshold, the Bureau then attempts to estimate the potential pass-
through of such cost reduction from the lenders to consumers, which
could benefit consumers and affect credit access. According to economic
theory, in a perfectly competitive market where financial institutions
are profit maximizers, the affected financial institutions would pass
on to consumers the marginal, i.e., variable, cost savings per
application or origination, and absorb the one-time and increased fixed
costs of complying with the rule.
The Bureau estimated in the 2015 HMDA Rule that the rule would
increase variable costs by $41.50 per open-end line of credit
application for representative low-complexity tier 3 institutions and
$6.20 per open-end line of credit application for representative
moderate-complexity tier 2 institutions. If the market is perfectly
competitive, all of these savings on variable costs by the excluded
open-end reporters could potentially be passed through to the
consumers. These expenses will be amortized over the life of a loan and
may represent a negligible reduction in the cost of a mortgage loan. As
a point of reference, the median loan amount of
[[Page 28402]]
open-end lines of credit (excluding reverse mortgages) in the 2018 HMDA
data was $75,000.\185\ The Bureau notes that the market structure in
the consumer mortgage lending market may differ from that of a
perfectly competitive market (for instance due to information asymmetry
between lenders and borrowers) in which case the pass-through to the
consumers would most likely be smaller than the pass-through under the
perfect competition assumption.\186\
---------------------------------------------------------------------------
\185\ See Bureau of Consumer Fin. Prot., ``Introducing New and
Revised Data Points in HMDA: Initial Observations from New and
Revised Data Points in 2018 HMDA'' (Aug. 2019), https://www.consumerfinance.gov/data-research/research-reports/introducing-new-revised-data-points-hmda/.
\186\ The further the market moves away from a perfectly
competitive market, the smaller the pass-through would be.
---------------------------------------------------------------------------
Costs to Consumers
Setting the permanent open-end threshold at 200 starting in 2022
will reduce the open-end data submitted under HMDA. As a result, HMDA
data on these institutions' open-end lines of credit and applications
will no longer be available to regulators, public officials, and
members of the public. The decreased data concerning affected financial
institutions may lead to adverse outcomes for some consumers. For
instance, reporting data on open-end line of credit applications and
originations and on certain demographic characteristics of applicants
and borrowers could help the regulators and public officials better
understand the type of funds that are flowing from lenders to consumers
and consumers' need for mortgage credit. Open-end line of credit data
that may be relevant to underwriting decisions may also help improve
the processes used to identify possible discriminatory lending patterns
and enforce antidiscrimination statutes. The Bureau has no quantitative
data that can sufficiently measure the magnitude of any such impact of
setting the permanent open-end threshold at 200. Additionally, the
Bureau sought comment on the costs to consumers associated with the
proposed increase to the open-end threshold but did not receive any
comments that quantify the losses.
F. Potential Specific Impacts of the Final Rule
1. Depository Institutions and Credit Unions With $10 Billion or Less
in Total Assets, as Described in Section 1026
As discussed above, the final rule will increase the threshold for
reporting data about closed-end mortgage loans from 25 to 100
originations in both of the preceding two calendar years and increase
the permanent threshold for reporting data about open-end lines of
credit from 100 to 200 open-end lines of credit in both of the
preceding two calendar years starting in 2022.
Both sets of provisions focus on burden reduction for smaller
institutions. Therefore, the Bureau believes that the benefits of this
final rule to depository institutions and credit unions with $10
billion or less in total assets will be similar to the benefit to
creditors as a whole, as discussed above.
For the closed-end threshold provision, the Bureau estimates that
for depository institutions and credit unions with $10 billion in
assets or less that would have been required to report under the 2015
HMDA Rule, and are not partially exempt under the EGRRCPA, the savings
on the annual operational costs from being excluded from closed-end
reporting under the proposal will be approximately $4,500 for a
representative low-complexity tier 3 institution, $44,700 for a
representative moderate-complexity tier 2 institution, and $343,000 for
a representative high-complexity tier 1 institution that fall below the
threshold of 100. For depository institutions and credit unions with
$10 billion in assets or less that would have been required to report
under the 2015 HMDA Rule, but are partially exempt under the EGRRCPA,
the Bureau estimates the savings on the annual operational costs from
not reporting any closed-end mortgage data under the final rule will be
approximately $2,200 for a representative low-complexity tier 3
institution, $32,800 for a representative moderate-complexity tier 2
institution, and $309,000 for a representative high-complexity tier 1
institution. For purposes of this final rule, the Bureau estimates that
about 1,640 of the approximately 1,700 institutions that will be
excluded by the reporting threshold of 100 closed-end mortgage loans
are small depository institutions or credit unions with assets at or
below $10 billion, and all but three of them are already partially
exempt under the EGRRCPA. About 1,560 of them are similar to
representative low-complexity tier 3 institution, with the rest being
moderate-complexity tier 2 institutions. Combined, the annual savings
on operational costs for depository institutions and credit unions with
$10 billion or less in assets newly excluded under the threshold of 100
closed-end mortgage loans will be about $6.0 million.\187\
---------------------------------------------------------------------------
\187\ In comparison, in the May 2019 Proposal, the Bureau
estimated that about 1,666 of the approximately 1,720 institutions
that would be excluded from the proposed alternative 100 loan
closed-end reporting threshold were small depository institutions or
credit unions with assets at or below $10 billion, and all but two
of them were already partially exempt under the EGRRCPA. About 1,573
of them are similar to representative low-complexity tier 3
institution, with the rest being moderate-complexity tier 2
institutions. Due to a transcription error, the Bureau indicated in
the May 2019 Proposal that, combined, the annual saving on
operational costs for depository institutions and credit unions with
$10 billion or less in assets newly excluded under the proposed
threshold of 100 closed-end mortgage loans would be about $4.8
million; however, upon review, the Bureau has determined that that
estimate should instead have been $6.7 million based on the analysis
in the May 2019 Proposal. As noted above, using the 2018 HMDA data,
the Bureau now estimates that there will be approximately $6.0
million estimated savings in annual operational costs under
threshold of 100 closed-end mortgage loans.
---------------------------------------------------------------------------
For the open-end threshold provisions, the Bureau estimates that
for depository institutions and credit unions with $10 billion in
assets or less that will not have to report open-end lines of credit
under the final rule, the reduction in annual ongoing operational costs
for the excluded institutions not eligible for the partial exemption
for open-end lines of credit under the EGRRCPA will be approximately
$8,800, $44,700, and $281,000 per year, for representative low-,
moderate-, and high-complexity financial institutions, respectively.
The Bureau estimates that the reduction in annual ongoing operational
costs for excluded institutions already partially exempt for open-end
lines of credit under the EGRRCPA will be approximately $4,300,
$21,900, and $138,000 annually, for representative low-, moderate-, and
high-complexity financial institutions, respectively. The Bureau
estimates that about 378 of the approximately 401 institutions that
will be excluded from open-end reporting starting in 2022 under the
final rule are small depository institutions or credit unions with
assets at or below $10 billion, and about 372 of them are already
partially exempt under the EGRRCPA. Combined, the Bureau estimates that
the annual saving on operational costs for depository institutions and
credit unions with $10 billion or less in assets newly excluded from
open-end reporting under the threshold of 200 open-end lines of credit
in this final rule would be about $3.5. million per year starting in
2022. Using the estimates of savings on one-time costs for open-end
lines of credit for representative financial institutions discussed
above, the Bureau estimates that by increasing the open-end
[[Page 28403]]
threshold to 200 starting in 2022, the excluded depository institutions
and credit unions with $10 billion or less in assets will receive an
aggregate savings in avoided one-time costs associated with open-end
lines of credit of about $20.9 million.\188\
---------------------------------------------------------------------------
\188\ In comparison, in the May 2019 Proposal, the Bureau
estimated that the annual saving on operational costs for depository
institutions and credit unions with $10 billion or less in assets
newly excluded from open-end reporting under the threshold of 200
open-end lines of credit would be about $19. million. Also, in the
May 2019 Proposal, the Bureau estimated the aggregate savings in
avoided one-time cost associated with the threshold of 200 open-end
lines of credit would be $3.8 million. The increases in the
estimated cost savings in this final rule for both annual ongoing
costs and one-time costs are due to the fact that the Bureau's
updated estimates are able to incorporate the number of applications
instead of originations based on information supplemented by the
2018 HMDA data.
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2. Impact of the Provisions on Consumers in Rural Areas
The final rule will not directly impact consumers in rural areas.
However, as with all consumers, consumers in rural areas may be
impacted indirectly. This would occur if financial institutions serving
rural areas are HMDA reporters (in which case the final rule will lead
to decreased information in rural areas) and if these institutions pass
on some or all of the cost reduction to consumers (in which case, some
consumers could benefit).
Recent research suggests that financial institutions that primarily
serve rural areas are generally not HMDA reporters.\189\ The Housing
Assistance Council (HAC) suggests that the current asset and geographic
coverage criteria already in place disproportionately exempt small
lenders operating in rural communities. For example, HAC uses 2009 Call
Report data to show that approximately 700 FDIC-insured lending
institutions had assets totaling less than the HMDA institutional
coverage threshold and were headquartered in rural communities. These
institutions, which would not be HMDA reporters, may represent one of
the few sources of credit for many rural areas. Some research also
suggests that limited HMDA data are currently reported for rural areas,
especially areas further from Metropolitan Statistical Areas
(MSAs).\190\ If a large portion of the rural housing market is serviced
by financial institutions that are already not HMDA reporters, any
indirect impact of the changes on consumers in rural areas would be
limited, as the changes directly involve none of those financial
institutions.
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\189\ See, e.g., Keith Wiley, ``What Are We Missing? HMDA Asset-
Excluded Filers,'' Hous. Assistance Council (2011), http://ruralhome.org/storage/documents/smallbanklending.pdf; Lance George &
Keith Wiley, ``Improving HMDA: A Need to Better Understand Rural
Mortgage Markets,'' Hous. Assistance Council (2010), http://www.ruralhome.org/storage/documents/notehmdasm.pdf.
\190\ See Robert B. Avery et al., ``Opportunities and Issues in
Using HMDA Data,'' 29 J. of Real Est. Res. 352 (2007).
---------------------------------------------------------------------------
However, although some research suggests that HMDA currently does
not cover a significant number of financial institutions serving the
rural housing market, HMDA data do contain information for some covered
loans involving properties in rural areas. These data can be used to
estimate the number of HMDA reporters servicing rural areas, and the
number of consumers in rural areas that might potentially be affected
by the changes to Regulation C. For this analysis, the Bureau uses non-
MSA areas as a proxy for rural areas, with the understanding that
portions of MSAs and non-MSAs may contain urban and rural territory and
populations. In 2018, 4,773 HMDA reporters reported applications or
purchased loans for property located in geographic areas outside of an
MSA. In total, these 5,207 financial institutions reported 1,562,399
applications or purchased loans for properties in non-MSA areas. This
number provides an upper-bound estimate of the number of consumers in
rural areas that could be impacted indirectly by the changes. In
general, individual financial institutions report small numbers of
covered loans from non-MSAs, as approximately 76 percent reported fewer
than 100 covered loans from non-MSAs.
Following microeconomic principles, the Bureau believes that
financial institutions will pass on reduced variable costs to future
mortgage applicants, but absorb one-time costs and increased fixed
costs if financial institutions are profit maximizers and the market is
perfectly competitive.\191\ The Bureau defines variable costs as costs
that depend on the number of applications received. Based on initial
outreach efforts, the following five operational steps affect variable
costs: Transcribing data, resolving reportability questions,
transferring data to an HMS, geocoding, and researching questions. The
primary impact of the final rule on these operational steps is a
reduction in time spent per task. Overall, the Bureau estimates that
the impact of the final rule on variable costs per application is to
reduce variable costs by no more than $42 for a representative low-
complexity tier 3 financial institution, $6 for a representative
moderate-complexity tier 2 financial institution, and $3 for a
representative high-complexity tier 1 financial institution.\192\ The
4,773 financial institutions that serviced rural areas could attempt to
pass these reduced variable costs on to all future mortgage customers,
including the estimated 1.6 million consumers from rural areas.
Amortized over the life of the loan, this expense likely represents a
negligible reduction in the cost of a mortgage loan. The Bureau notes
that the market structure in the consumer mortgage lending market may
differ from that of a perfectly competitive market (for instance due to
information asymmetry between lenders and borrowers) in which case the
pass-through to the consumers would most likely be smaller than the
pass-through under the perfect competition assumption.\193\
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\191\ If markets are not perfectly competitive or financial
institutions are not profit maximizers, then what financial
institutions pass on may differ. For example, they may attempt to
pass on one-time costs and increases in fixed costs, or they may not
be able to pass on variable costs.
\192\ These cost estimates represent the highest estimates among
the estimates presented in previous sections and form the upper
bound of possible savings.
\193\ The further the market moves away from a perfectly
competitive market, the smaller the pass-through would be.
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The rural market may differ from non-rural markets in terms of
market structure, demand, supply, and competition level. For instance,
local or community banks may be more likely to serve some rural markets
than national lenders. Therefore, consumers in rural areas may
experience benefits and costs from the final rule that are different
than those experienced by consumers in general. To the extent that the
impacts of the final rule on creditors differ by type of creditor, this
may affect the costs and benefits of the final rule on consumers in
rural areas.
The Bureau also recognizes, as discussed in the section-by-section
analysis of Sec. 1003.2(g) above, that rural and low-to-moderate
income census tracts will lose proportionately more data as the
threshold increases than other areas. However, the Bureau currently
lacks sufficient data to quantify the impact of this decrease in data.
VIII. Final Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act \194\ as amended by the Small
Business Regulatory Enforcement Fairness Act of
[[Page 28404]]
1996 \195\ (RFA) requires each agency to consider the potential impact
of its regulations on small entities, including small businesses, small
governmental units, and small not-for-profit organizations.\196\ The
RFA defines a ``small business'' as a business that meets the size
standard developed by the Small Business Administration pursuant to the
Small Business Act.\197\
---------------------------------------------------------------------------
\194\ Public Law 96-354, 94 Stat. 1164 (1980).
\195\ Public Law 104-21, section 241, 110 Stat. 847, 864-65
(1996).
\196\ 5 U.S.C. 601-612. The term `` `small organization' means
any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field, unless an agency
establishes [an alternative definition under notice and comment].''
5 U.S.C. 601(4). The term `` `small governmental jurisdiction' means
governments of cities, counties, towns, townships, villages, school
districts, or special districts, with a population of less than
fifty thousand, unless an agency establishes [an alternative
definition after notice and comment].'' 5 U.S.C. 601(5).
\197\ 5 U.S.C. 601(3). The Bureau may establish an alternative
definition after consulting with the Small Business Administration
and providing an opportunity for public comment. Id.
---------------------------------------------------------------------------
The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities.\198\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\199\
---------------------------------------------------------------------------
\198\ 5 U.S.C. 601-612.
\199\ 5 U.S.C. 609.
---------------------------------------------------------------------------
As discussed above, this final rule increases the threshold for
reporting data about closed-end mortgage loans from 25 to 100
originations in each of the two preceding calendar years and sets the
permanent open-end threshold at 200 originations when the temporary
threshold of 500 originations expires in 2022. The section 1022(b)(2)
analysis above describes how this final rule reduces the costs and
burdens on covered persons, including small entities. Additionally, as
described in the analysis above, a small entity that is in compliance
with the law at such time when this final rule takes effect does not
need to take any additional action to remain in compliance other than
choosing to switch off all or parts of reporting systems and functions.
Based on these considerations, the final rule does not have a
significant economic impact on any small entities.
Accordingly, the Director hereby certifies that this final rule
will not have a significant economic impact on a substantial number of
small entities. Thus, neither an FRFA nor a small business review panel
is required for this final rule.
IX. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), Federal agencies are generally required to seek the Office of
Management and Budget's (OMB's) approval for information collection
requirements prior to implementation. The collections of information
related to Regulation C have been previously reviewed and approved by
OMB and assigned OMB Control number 3170-0008. Under the PRA, the
Bureau may not conduct or sponsor and, notwithstanding any other
provision of law, a person is not required to respond to an information
collection unless the information collection displays a valid control
number assigned by OMB. The Bureau has determined that this final rule
would not impose any new or revised information collection requirements
(recordkeeping, reporting or disclosure requirements) on covered
entities or members of the public that would constitute collections of
information requiring OMB approval under the PRA.
X. Congressional Review Act
Pursuant to the Congressional Review Act,\200\ the Bureau will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States prior to the rule's published effective
date. The Office of Information and Regulatory Affairs has designated
this rule as not a ``major rule'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------
\200\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------
XI. Signing Authority
The Director of the Bureau, having reviewed and approved this
document is delegating the authority to electronically sign this
document to Laura Galban, a Bureau Federal Register Liaison, for
purposes of publication in the Federal Register.
List of Subjects in 12 CFR Part 1003
Banks, Banking, Credit unions, Mortgages, National banks, Reporting
and recordkeeping requirements, Savings associations.
Authority and Issuance
For the reasons set forth above, the Bureau amends Regulation C, 12
CFR part 1003, as follows:
PART 1003--HOME MORTGAGE DISCLOSURE (REGULATION C)
0
1. The authority citation for part 1003 continues to read as follows:
Authority: 12 U.S.C. 2803, 2804, 2805, 5512, 5581.
0
2. Effective July 1, 2020, Sec. 1003.2 is amended by revising
paragraphs (g)(1)(v)(A) and (g)(2)(ii)(A) to read as follows:
Sec. 1003.2 Definitions.
* * * * *
(g) * * *
(1) * * *
(v) * * *
(A) In each of the two preceding calendar years, originated at
least 100 closed-end mortgage loans that are not excluded from this
part pursuant to Sec. 1003.3(c)(1) through (10) or (c)(13); or
* * * * *
(2) * * *
(ii) * * *
(A) In each of the two preceding calendar years, originated at
least 100 closed-end mortgage loans that are not excluded from this
part pursuant to Sec. 1003.3(c)(1) through (10) or (c)(13); or
* * * * *
0
3. Effective July 1, 2020, Sec. 1003.3 is amended by revising
paragraph (c)(11) to read as follows:
Sec. 1003.3 Exempt institutions and excluded and partially exempt
transactions.
* * * * *
(c) * * *
(11) A closed-end mortgage loan, if the financial institution
originated fewer than 100 closed-end mortgage loans in either of the
two preceding calendar years; a financial institution (including, for
purposes of information collected in 2020, an institution that was a
financial institution as of January 1, 2020) may collect, record,
report, and disclose information, as described in Sec. Sec. 1003.4 and
1003.5, for such an excluded closed-end mortgage loan as though it were
a covered loan, provided that the financial institution complies with
such requirements for all applications for closed-end mortgage loans
that it receives, closed-end mortgage loans that it originates, and
closed-end mortgage loans that it purchases that otherwise would have
been covered loans during the calendar year during which final action
is taken on the excluded closed-end mortgage loan;
* * * * *
0
4. Effective July 1, 2020, supplement I to part 1003 is amended as
follows:
0
a. Under Section 1003.2--Definitions, revise 2(g) Financial
Institution.
[[Page 28405]]
0
b. Under Section 1003.3--Exempt Institutions and Excluded and Partially
Exempt Transactions, under 3(c) Excluded Transactions, revise Paragraph
3(c)(11).
The revisions read as follows:
Supplement I to Part 1003--Official Interpretations
* * * * *
Section 1003.2--Definitions
* * * * *
2(g) Financial Institution
1. Preceding calendar year and preceding December 31. The
definition of financial institution refers both to the preceding
calendar year and the preceding December 31. These terms refer to
the calendar year and the December 31 preceding the current calendar
year. For example, in 2021, the preceding calendar year is 2020, and
the preceding December 31 is December 31, 2020. Accordingly, in
2021, Financial Institution A satisfies the asset-size threshold
described in Sec. 1003.2(g)(1)(i) if its assets exceeded the
threshold specified in comment 2(g)-2 on December 31, 2020.
Likewise, in 2021, Financial Institution A does not meet the loan-
volume test described in Sec. 1003.2(g)(1)(v)(A) if it originated
fewer than 100 closed-end mortgage loans during either 2019 or 2020.
2. Adjustment of exemption threshold for banks, savings
associations, and credit unions. For data collection in 2020, the
asset-size exemption threshold is $47 million. Banks, savings
associations, and credit unions with assets at or below $47 million
as of December 31, 2019, are exempt from collecting data for 2020.
3. Merger or acquisition--coverage of surviving or newly formed
institution. After a merger or acquisition, the surviving or newly
formed institution is a financial institution under Sec. 1003.2(g)
if it, considering the combined assets, location, and lending
activity of the surviving or newly formed institution and the merged
or acquired institutions or acquired branches, satisfies the
criteria included in Sec. 1003.2(g). For example, A and B merge.
The surviving or newly formed institution meets the loan threshold
described in Sec. 1003.2(g)(1)(v)(B) if the surviving or newly
formed institution, A, and B originated a combined total of at least
500 open-end lines of credit in each of the two preceding calendar
years. Likewise, the surviving or newly formed institution meets the
asset-size threshold in Sec. 1003.2(g)(1)(i) if its assets and the
combined assets of A and B on December 31 of the preceding calendar
year exceeded the threshold described in Sec. 1003.2(g)(1)(i).
Comment 2(g)-4 discusses a financial institution's responsibilities
during the calendar year of a merger.
4. Merger or acquisition--coverage for calendar year of merger
or acquisition. The scenarios described below illustrate a financial
institution's responsibilities for the calendar year of a merger or
acquisition. For purposes of these illustrations, a ``covered
institution'' means a financial institution, as defined in Sec.
1003.2(g), that is not exempt from reporting under Sec. 1003.3(a),
and ``an institution that is not covered'' means either an
institution that is not a financial institution, as defined in Sec.
1003.2(g), or an institution that is exempt from reporting under
Sec. 1003.3(a).
i. Two institutions that are not covered merge. The surviving or
newly formed institution meets all of the requirements necessary to
be a covered institution. No data collection is required for the
calendar year of the merger (even though the merger creates an
institution that meets all of the requirements necessary to be a
covered institution). When a branch office of an institution that is
not covered is acquired by another institution that is not covered,
and the acquisition results in a covered institution, no data
collection is required for the calendar year of the acquisition.
ii. A covered institution and an institution that is not covered
merge. The covered institution is the surviving institution, or a
new covered institution is formed. For the calendar year of the
merger, data collection is required for covered loans and
applications handled in the offices of the merged institution that
was previously covered and is optional for covered loans and
applications handled in offices of the merged institution that was
previously not covered. When a covered institution acquires a branch
office of an institution that is not covered, data collection is
optional for covered loans and applications handled by the acquired
branch office for the calendar year of the acquisition.
iii. A covered institution and an institution that is not
covered merge. The institution that is not covered is the surviving
institution, or a new institution that is not covered is formed. For
the calendar year of the merger, data collection is required for
covered loans and applications handled in offices of the previously
covered institution that took place prior to the merger. After the
merger date, data collection is optional for covered loans and
applications handled in the offices of the institution that was
previously covered. When an institution remains not covered after
acquiring a branch office of a covered institution, data collection
is required for transactions of the acquired branch office that take
place prior to the acquisition. Data collection by the acquired
branch office is optional for transactions taking place in the
remainder of the calendar year after the acquisition.
iv. Two covered institutions merge. The surviving or newly
formed institution is a covered institution. Data collection is
required for the entire calendar year of the merger. The surviving
or newly formed institution files either a consolidated submission
or separate submissions for that calendar year. When a covered
institution acquires a branch office of a covered institution, data
collection is required for the entire calendar year of the merger.
Data for the acquired branch office may be submitted by either
institution.
5. Originations. Whether an institution is a financial
institution depends in part on whether the institution originated at
least 100 closed-end mortgage loans in each of the two preceding
calendar years or at least 500 open-end lines of credit in each of
the two preceding calendar years. Comments 4(a)-2 through -4 discuss
whether activities with respect to a particular closed-end mortgage
loan or open-end line of credit constitute an origination for
purposes of Sec. 1003.2(g).
6. Branches of foreign banks--treated as banks. A Federal branch
or a State-licensed or insured branch of a foreign bank that meets
the definition of a ``bank'' under section 3(a)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(a)) is a bank for the purposes
of Sec. 1003.2(g).
7. Branches and offices of foreign banks and other entities--
treated as nondepository financial institutions. A Federal agency,
State-licensed agency, State-licensed uninsured branch of a foreign
bank, commercial lending company owned or controlled by a foreign
bank, or entity operating under section 25 or 25A of the Federal
Reserve Act, 12 U.S.C. 601 and 611 (Edge Act and agreement
corporations) may not meet the definition of ``bank'' under the
Federal Deposit Insurance Act and may thereby fail to satisfy the
definition of a depository financial institution under Sec.
1003.2(g)(1). An entity is nonetheless a financial institution if it
meets the definition of nondepository financial institution under
Sec. 1003.2(g)(2).
* * * * *
Section 1003.3--Exempt Institutions and Excluded and Partially
Exempt Transactions
* * * * *
3(c) Excluded Transactions
* * * * *
Paragraph 3(c)(11)
1. General. Section 1003.3(c)(11) provides that a closed-end
mortgage loan is an excluded transaction if a financial institution
originated fewer than 100 closed-end mortgage loans in either of the
two preceding calendar years. For example, assume that a bank is a
financial institution in 2021 under Sec. 1003.2(g) because it
originated 600 open-end lines of credit in 2019, 650 open-end lines
of credit in 2020, and met all of the other requirements under Sec.
1003.2(g)(1). Also assume that the bank originated 75 and 90 closed-
end mortgage loans in 2019 and 2020, respectively. The open-end
lines of credit that the bank originated or purchased, or for which
it received applications, during 2021 are covered loans and must be
reported, unless they otherwise are excluded transactions under
Sec. 1003.3(c). However, the closed-end mortgage loans that the
bank originated or purchased, or for which it received applications,
during 2021 are excluded transactions under Sec. 1003.3(c)(11) and
need not be reported. See comments 4(a)-2 through -4 for guidance
about the activities that constitute an origination.
2. Optional reporting. A financial institution may report
applications for, originations of, or purchases of closed-end
mortgage loans that are excluded transactions because the financial
institution originated fewer than 100 closed-end mortgage loans in
either of the two preceding calendar years. However, a financial
institution that chooses to report such excluded applications for,
originations of, or purchases of closed-end mortgage loans must
report all such
[[Page 28406]]
applications for closed-end mortgage loans that it receives, closed-
end mortgage loans that it originates, and closed-end mortgage loans
that it purchases that otherwise would be covered loans for a given
calendar year. Note that applications which remain pending at the
end of a calendar year are not reported, as described in comment
4(a)(8)(i)-14. An institution that was a financial institution as of
January 1, 2020 but is not a financial institution on July 1, 2020
because it originated fewer than 100 closed-end mortgage loans in
2018 or 2019 is not required in 2021 to report, but may report,
applications for, originations of, or purchases of closed-end
mortgage loans for calendar year 2020 that are excluded transactions
because the institution originated fewer than 100 closed-end
mortgage loans in 2018 or 2019. However, an institution that was a
financial institution as of January 1, 2020 and chooses to report
such excluded applications for, originations of, or purchases of
closed-end mortgage loans in 2021 must report all such applications
for closed-end mortgage loans that it receives, closed-end mortgage
loans that it originates, and closed-end mortgage loans that it
purchases that otherwise would be covered loans for all of calendar
year 2020.
* * * * *
0
5. Effective January 1, 2022, Sec. 1003.2, as amended at 84 FR 57946,
October 29, 2019, is further amended by revising paragraphs
(g)(1)(v)(B) and (g)(2)(ii)(B) to read as follows:
Sec. 1003.2 Definitions.
* * * * *
(g) * * *
(1) * * *
(v) * * *
(B) In each of the two preceding calendar years, originated at
least 200 open-end lines of credit that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10); and
* * * * *
(2) * * *
(ii) * * *
(B) In each of the two preceding calendar years, originated at
least 200 open-end lines of credit that are not excluded from this part
pursuant to Sec. 1003.3(c)(1) through (10).
* * * * *
0
6. Effective January 1, 2022, Sec. 1003.3, is amended by revising
paragraph (c)(11) and as amended at 84 FR 57946, October 29, 2019, is
further amended by revising paragraph (c)(12) to read as follows:
Sec. 1003.3 Exempt institutions and excluded and partially exempt
transactions.
* * * * *
(c) * * *
(11) A closed-end mortgage loan, if the financial institution
originated fewer than 100 closed-end mortgage loans in either of the
two preceding calendar years; a financial institution may collect,
record, report, and disclose information, as described in Sec. Sec.
1003.4 and 1003.5, for such an excluded closed-end mortgage loan as
though it were a covered loan, provided that the financial institution
complies with such requirements for all applications for closed-end
mortgage loans that it receives, closed-end mortgage loans that it
originates, and closed-end mortgage loans that it purchases that
otherwise would have been covered loans during the calendar year during
which final action is taken on the excluded closed-end mortgage loan;
(12) An open-end line of credit, if the financial institution
originated fewer than 200 open-end lines of credit in either of the two
preceding calendar years; a financial institution may collect, record,
report, and disclose information, as described in Sec. Sec. 1003.4 and
1003.5, for such an excluded open-end line of credit as though it were
a covered loan, provided that the financial institution complies with
such requirements for all applications for open-end lines of credit
that it receives, open-end lines of credit that it originates, and
open-end lines of credit that it purchases that otherwise would have
been covered loans during the calendar year during which final action
is taken on the excluded open-end line of credit; or
* * * * *
0
7. Effective January 1, 2022, supplement I to part 1003, as amended at
84 FR 57946, October 29, 2019, is further amended as follows:
0
a. Under Section 1003.2--Definitions, revise 2(g) Financial
Institution; and
0
b. Under Section 1003.3--Exempt Institutions and Excluded and Partially
Exempt Transactions, under 3(c) Excluded Transactions, revise
Paragraphs 3(c)(11) and 3(c)(12).
The revisions read as follows:
Supplement I to Part 1003--Official Interpretations
* * * * *
Section 1003.2--Definitions
* * * * *
2(g) Financial Institution
1. Preceding calendar year and preceding December 31. The
definition of financial institution refers both to the preceding
calendar year and the preceding December 31. These terms refer to
the calendar year and the December 31 preceding the current calendar
year. For example, in 2021, the preceding calendar year is 2020, and
the preceding December 31 is December 31, 2020. Accordingly, in
2021, Financial Institution A satisfies the asset-size threshold
described in Sec. 1003.2(g)(1)(i) if its assets exceeded the
threshold specified in comment 2(g)-2 on December 31, 2020.
Likewise, in 2021, Financial Institution A does not meet the loan-
volume test described in Sec. 1003.2(g)(1)(v)(A) if it originated
fewer than 100 closed-end mortgage loans during either 2019 or 2020.
2. [Reserved]
3. Merger or acquisition--coverage of surviving or newly formed
institution. After a merger or acquisition, the surviving or newly
formed institution is a financial institution under Sec. 1003.2(g)
if it, considering the combined assets, location, and lending
activity of the surviving or newly formed institution and the merged
or acquired institutions or acquired branches, satisfies the
criteria included in Sec. 1003.2(g). For example, A and B merge.
The surviving or newly formed institution meets the loan threshold
described in Sec. 1003.2(g)(1)(v)(B) if the surviving or newly
formed institution, A, and B originated a combined total of at least
200 open-end lines of credit in each of the two preceding calendar
years. Likewise, the surviving or newly formed institution meets the
asset-size threshold in Sec. 1003.2(g)(1)(i) if its assets and the
combined assets of A and B on December 31 of the preceding calendar
year exceeded the threshold described in Sec. 1003.2(g)(1)(i).
Comment 2(g)-4 discusses a financial institution's responsibilities
during the calendar year of a merger.
4. Merger or acquisition--coverage for calendar year of merger
or acquisition. The scenarios described below illustrate a financial
institution's responsibilities for the calendar year of a merger or
acquisition. For purposes of these illustrations, a ``covered
institution'' means a financial institution, as defined in Sec.
1003.2(g), that is not exempt from reporting under Sec. 1003.3(a),
and ``an institution that is not covered'' means either an
institution that is not a financial institution, as defined in Sec.
1003.2(g), or an institution that is exempt from reporting under
Sec. 1003.3(a).
i. Two institutions that are not covered merge. The surviving or
newly formed institution meets all of the requirements necessary to
be a covered institution. No data collection is required for the
calendar year of the merger (even though the merger creates an
institution that meets all of the requirements necessary to be a
covered institution). When a branch office of an institution that is
not covered is acquired by another institution that is not covered,
and the acquisition results in a covered institution, no data
collection is required for the calendar year of the acquisition.
ii. A covered institution and an institution that is not covered
merge. The covered institution is the surviving institution, or a
new covered institution is formed. For the calendar year of the
merger, data collection is required for covered loans and
applications handled in the offices of the merged institution that
was previously covered and is optional for covered loans and
applications handled in offices of the merged institution that was
previously not covered. When a covered institution acquires a branch
office of an institution that is not covered, data collection is
optional for covered loans and applications handled by the acquired
[[Page 28407]]
branch office for the calendar year of the acquisition.
iii. A covered institution and an institution that is not
covered merge. The institution that is not covered is the surviving
institution, or a new institution that is not covered is formed. For
the calendar year of the merger, data collection is required for
covered loans and applications handled in offices of the previously
covered institution that took place prior to the merger. After the
merger date, data collection is optional for covered loans and
applications handled in the offices of the institution that was
previously covered. When an institution remains not covered after
acquiring a branch office of a covered institution, data collection
is required for transactions of the acquired branch office that take
place prior to the acquisition. Data collection by the acquired
branch office is optional for transactions taking place in the
remainder of the calendar year after the acquisition.
iv. Two covered institutions merge. The surviving or newly
formed institution is a covered institution. Data collection is
required for the entire calendar year of the merger. The surviving
or newly formed institution files either a consolidated submission
or separate submissions for that calendar year. When a covered
institution acquires a branch office of a covered institution, data
collection is required for the entire calendar year of the merger.
Data for the acquired branch office may be submitted by either
institution.
5. Originations. Whether an institution is a financial
institution depends in part on whether the institution originated at
least 100 closed-end mortgage loans in each of the two preceding
calendar years or at least 200 open-end lines of credit in each of
the two preceding calendar years. Comments 4(a)-2 through -4 discuss
whether activities with respect to a particular closed-end mortgage
loan or open-end line of credit constitute an origination for
purposes of Sec. 1003.2(g).
6. Branches of foreign banks--treated as banks. A Federal branch
or a State-licensed or insured branch of a foreign bank that meets
the definition of a ``bank'' under section 3(a)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(a)) is a bank for the purposes
of Sec. 1003.2(g).
7. Branches and offices of foreign banks and other entities--
treated as nondepository financial institutions. A Federal agency,
State-licensed agency, State-licensed uninsured branch of a foreign
bank, commercial lending company owned or controlled by a foreign
bank, or entity operating under section 25 or 25A of the Federal
Reserve Act, 12 U.S.C. 601 and 611 (Edge Act and agreement
corporations) may not meet the definition of ``bank'' under the
Federal Deposit Insurance Act and may thereby fail to satisfy the
definition of a depository financial institution under Sec.
1003.2(g)(1). An entity is nonetheless a financial institution if it
meets the definition of nondepository financial institution under
Sec. 1003.2(g)(2).
* * * * *
Section 1003.3--Exempt Institutions and Excluded and Partially
Exempt Transactions
* * * * *
3(c) Excluded Transactions
* * * * *
Paragraph 3(c)(11)
1. General. Section 1003.3(c)(11) provides that a closed-end
mortgage loan is an excluded transaction if a financial institution
originated fewer than 100 closed-end mortgage loans in either of the
two preceding calendar years. For example, assume that a bank is a
financial institution in 2022 under Sec. 1003.2(g) because it
originated 300 open-end lines of credit in 2020, 350 open-end lines
of credit in 2021, and met all of the other requirements under Sec.
1003.2(g)(1). Also assume that the bank originated 75 and 90 closed-
end mortgage loans in 2020 and 2021, respectively. The open-end
lines of credit that the bank originated or purchased, or for which
it received applications, during 2022 are covered loans and must be
reported, unless they otherwise are excluded transactions under
Sec. 1003.3(c). However, the closed-end mortgage loans that the
bank originated or purchased, or for which it received applications,
during 2022 are excluded transactions under Sec. 1003.3(c)(11) and
need not be reported. See comments 4(a)-2 through-4 for guidance
about the activities that constitute an origination.
2. Optional reporting. A financial institution may report
applications for, originations of, or purchases of closed-end
mortgage loans that are excluded transactions because the financial
institution originated fewer than 100 closed-end mortgage loans in
either of the two preceding calendar years. However, a financial
institution that chooses to report such excluded applications for,
originations of, or purchases of closed-end mortgage loans must
report all such applications for closed-end mortgage loans that it
receives, closed-end mortgage loans that it originates, and closed-
end mortgage loans that it purchases that otherwise would be covered
loans for a given calendar year. Note that applications which remain
pending at the end of a calendar year are not reported, as described
in comment 4(a)(8)(i)-14.
Paragraph 3(c)(12)
1. General. Section 1003.3(c)(12) provides that an open-end line
of credit is an excluded transaction if a financial institution
originated fewer than 200 open-end lines of credit in either of the
two preceding calendar years. For example, assume that a bank is a
financial institution in 2022 under Sec. 1003.2(g) because it
originated 100 closed-end mortgage loans in 2020, 175 closed-end
mortgage loans in 2021, and met all of the other requirements under
Sec. 1003.2(g)(1). Also assume that the bank originated 175 and 185
open-end lines of credit in 2020 and 2021, respectively. The closed-
end mortgage loans that the bank originated or purchased, or for
which it received applications, during 2022 are covered loans and
must be reported, unless they otherwise are excluded transactions
under Sec. 1003.3(c). However, the open-end lines of credit that
the bank originated or purchased, or for which it received
applications, during 2022 are excluded transactions under Sec.
1003.3(c)(12) and need not be reported. See comments 4(a)-2 through
-4 for guidance about the activities that constitute an origination.
2. Optional reporting. A financial institution may report
applications for, originations of, or purchases of open-end lines of
credit that are excluded transactions because the financial
institution originated fewer than 200 open-end lines of credit in
either of the two preceding calendar years. However, a financial
institution that chooses to report such excluded applications for,
originations of, or purchases of open-end lines of credit must
report all such applications for open-end lines of credit which it
receives, open-end lines of credit that it originates, and open-end
lines of credit that it purchases that otherwise would be covered
loans for a given calendar year. Note that applications which remain
pending at the end of a calendar year are not reported, as described
in comment 4(a)(8)(i)-14.
* * * * *
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-08409 Filed 5-11-20; 8:45 am]
BILLING CODE 4810-AM-P